1. business and industrial

English - Englanti
GUIDE
Becoming an
Entrepreneur in Finland
Network at your service
Finnish Enterprise Agencies
Preface
Setting up your own business is a good
way for immigrants to find work in Finland. At the moment, there are around
6,500 businesses operating in this
country that have been established by
someone who has moved from abroad.
More than half of these businesses
are based in the Helsinki metropolitan
area.
This guide is intended for those of
you who wish to start a business in Finland. You may already have a business
idea, but this needs to be developed
further. This guide talks about the main
issues that you should be familiar with
and sort out before you decide to set up
your business.
You must do some calculations and
prepare some estimates, establish your
market and arrange finance. Do you
know Finnish law well enough? Also,
consider whether you have the right
kind of temperament to work as an entrepreneur.
Finland is a good country for the entrepreneur, and a person who is starting
up a new business can obtain help in
many different ways. The biggest problem for those setting up a business is
usually obtaining enough finance.
2
In addition, it will be difficult for you
to work as an entrepreneur if you don’t
know the Finnish language. It is worth
beginning language studies as soon as
you arrive in Finland. Also, think about
whether you need to update your professional skills. Would a course for entrepreneurs help You at the outset?
In this guide, we have tried to be
as clear as possible in our use of language. Business terms and words have
been explained in a dictionary section
presented at the end of this booklet.
Make sure you familiarise yourself with this guide and contact the
business advisory services, which are
free. In the Helsinki Metropolitan Area,
you can contact Enterprise Helsinki or
the Vantaa or Espoo regional enterprise agencies. You can also find regional enterprise agencies elsewhere
in the country, as well as regional development companies. Together with
business advisers, you can consider
whether your idea can be turned into a
profitable business operation.
This guide “Becoming an Entrepreneur in Finland” was created as part of
the ESF-funded Multicultural Business
Services project. It was produced in
collaboration with Enterprise Helsinki
business advisers and experts in plain
language from the University of Helsinki
Palmenia Centre for Continuing Education. Also involved were the Cities of
Espoo, Vantaa and Kauniainen.
This guide has been translated into
various languages. This translation
work and circulation of the publications
have been funded by the ESF Masuuni
project (encouraging immigrants to become entrepreneurs in Finland), which
is a joint venture between the Association of Regional Enterprise Agencies of
Finland, Cursor Oy, EnterpriseHelsinki
and the Tampere Regional Enterprise
Agency, Ensimetri.
More information is available from the
following websites:
www.uusyrityskeskus.fi
www.yrityshelsinki.fi
www.vuyk.fi
www.espoonseudunuusyrityskeskus.fi
www.yrityssuomi.fi
www.sekes.fi
Becoming an
Entrepreneur in Finland
Contents
What is entrepreneurship?
4
Registration issues
So could you become an 5
Bookkeeping and financial statements
entrepreneur?
5
for the enterprise
30
The various forms of 6
Income taxation and VAT
32
entrepreneurship
6
Insurance
36
Stages of establishing an enterprise 8
Entrepreneur’s pension insurance
28
Business plan
10
- self employed persons’ pensions act (yel)
37
Marketing and advertising
16
Entrepreneur’s unemployment benefit
38
Pricing
18
Employment of employees 39
Funding for a new business start-up
20
Business culture in Finland
40
Funding for a new business start-up
20
Environmental responsibility 41
Start-up grants
21
of the business
41
Licensed industries 22
Checklist for the new entrepreneur
42
Forms of enterprise
24
10 Steps to success
43
Forms of enterprise
24
Business dictionary
44
This guide is intended for those of you who wish to
start a business in Finland. The publishing and circulation of the publications have been funded by the ESF
Masuuni project.
Publisher:
Suomen Uusyrityskeskukset ry
Texts: Uusyrityskeskusverkosto
Graphic design: Unikuva / Mats Vuorenjuuri
www.uusyrityskeskus.fi
© Suomen Uusyrityskeskukset ry 2011
All rigths reserved
3
What is entrepreneurship?
The aim of a business is that it succeeds and makes a profit. Entrepreneurship, or enterprise, is about identifying the risks relating to a business
activity and about preparing for them,
i.e. the skill to make a business operation profitable.
Enterprise is also about belief in one’s
own business idea. Enterprise may be
a way of life or a means of providing a
livelihood and employing oneself. Enterprise is also about making good use
of your professional skills, social skills
and language skills, and immigrants
can use these to enrich our business
world and bring an international quality to it.
What is an entrepreneur?
The official definition of an entrepreneur in Finland depends on the authority concerned. The term “entrepreneur”
is defined in different ways in corporate
law and in pensions and unemployment
matters. Here is an example: The entrepreneur is a person who, alone or
together with others, carries out activities in a business whose objective is to
make a profit. These activities include
a degree of risk taking.
Enterprise is also
about making good
use of your professional skills, social
and language skills.
4
From the viewpoint of unemployment
benefit, a person is regarded as an entrepreneur when (s)he:
• is liable to take out insurance as
specified by the Self-Employed
Persons’ Pensions Act, or
• works in a managerial position
(managing director or member of
the board of directors) in an enterprise where (s)he owns at least
15 % or where (s)he together with
family members owns at least ­
30 %, or
• works in an enterprise where (s)
he, his/her family members or all of
them together own at least 50 %.
When the share of ownership is calculated, indirect ownership via other enterprises and organisations is also taken into account.
Becoming an
Entrepreneur in Finland
So could you become an
entrepreneur?
Personal qualities and skills lay the
foundation for a successful business.
Different fields require different qualities and skills. Think about your own
strengths. What do you still have to develop?
• you can determine your working
hours
• there is the opportunity to make ­
a financial success
• you can fulfil your dreams
• you can employ others
In addition, (s)he must also know the
bases for financial management, pricing, budgeting and marketing. It is possible to gain or improve such skills and
knowledge with the help of training or
experts.
Good qualities for an entrepreneur
to have include:
• hard-working
• creative
• bold, works on one’s own initiative
• strives for good results
• determined
• knows how to sell his/her product
• prepared to take risks
• can cope with uncertainty
Challenges in starting up as an entrepreneur:
• arranging finance
• lack of expertise and experience
• lack of knowledge of legislation,
taxation and setting up contracts
• insufficient skills in the Finnish
­language
• lack of familiarity with Finnish
­business culture
• time management (work/study,
family/spouse, free-time, etc.).
It is worth remembering that becoming
an entrepreneur does not mean that
you have to work as an entrepreneur
for ever. You can think of this as one
phase of your life and as a part of your
whole career.
Things that motivate people to
become entrepreneurs:
• you can become your own boss
• you can determine your own work
tasks
To be an entrepreneur
can be a part of your
whole career.
A person planning to set up a business
must be familiar with the field where (s)
he intends to establish the business.
5
The various forms of
entrepreneurship
Establishing a new enterprise
Completely new business idea
An enterprise may be set up to commercialise a completely new business idea,
product, service or invention. This is the
most challenging way to start a business, and it includes the most risks.
Existing business idea
The most typical way to start a business
is to use an existing business idea but
implement it in a new and more competitive way or in a new market area.
Buying a business that is
­already operating
In Finland, there are many businesses
that need someone to continue their
operations. The unearthing of such a
business could be the impulse to start
up as an entrepreneur. The acquisition
of a business always includes risks, but
this provides the new entrepreneur with
a simple way of setting up and the possibility of starting business operations
straight away, as the business will already have customers and sales.
The options are:
1) to buy the whole of a working
­enterprise
2) to buy part of an enterprise (one
function)
3) to just buy the enterprise’s
­business operations
4) to buy part of the business
­operations.
You can find details of companies for
sale by using the search service of the
Federation of Finnish Enterprises at
http://yritysporssi.yrittajat.fi, for example.
If you intend to buy an enterprise or
business, make sure you use experts to
help you assess the financial situation
6
of the enterprise and the risks relating
to its business. Financial-management
professionals (accountants, auditors
and corporate acquisition consultants)
will advise you on whether the business’s operations are profitable and
whether its accounting is reliable. Before you sign the contracts and other
documents, you should also seek advice from a legal expert.
However, buying the business operations alone is a safer option than buying
the whole enterprise, because then the
old liabilities and debts of the enterprise
are not transferred to the new owner.
Entrepreneurship as a
­franchisee
Working as a franchisee allows you
to start up a business without having
your own business idea. Franchising
is a long-term collaborative agreement
between two independent enterprises.
The franchisor grants to the franchisee
(of whom there may be many) the right
to use, in return for payment and in accordance with the terms of reference,
the business idea that the franchisor
has developed and devised, and which
it controls. The basic principle in a franchising business is that the franchisor
can duplicate an idea, i.e. set up many
enterprises using the same idea, for example in different areas. Franchising
enterprises operate in Finland in the kiosk, cleaning and restaurant trades, for
example. Further information is available from the Finnish Franchising Association’s website, www.franchising.fi.
Part-time entrepreneurship
Starting up a business part-time, for example in addition to a main job or studies, is recommended if the person is not
sure whether the business will be profitable – at least to begin with. Working
on a part-time basis, you can test first
whether there are enough customers
and assess how the business will develop and whether there is potential to
Becoming an
Entrepreneur in Finland
Team entrepreneurship
However, you should note that your Employment and Economic Development
Office will not grant business start-up
funds to part-time entrepreneurs!
Here, several people who wish to become entrepreneurs establish a business together. All these people are
responsible for the success of the enterprise. For example, when two businesses merge, the partners of these
enterprises may become partners in
the new enterprise.
2) a salary accordant with a collective
labour agreement is paid to everyone
3) the working hours are more than
75 % and for those in poor health
at least 50 % of the maximum
working hours in the industry
4) public subsidies are less than half
of net sales.
Partnership
Social entrepreneurship
Social enterprises may be
granted public subsidies ­
for labour costs.
become a full-time entrepreneur. Your
own financial risk will be lower because
your income is not totally dependent on
the success of the business.
Operating as a partner can be a very
entrepreneurial activity depending on
how the responsibilities and authority
are split amongst the partners. For example, in family businesses, the spouse
and children may be partners. In small
businesses, it may be possible to get
key people to commit themselves to
the enterprise and its development by
transferring stakes in the business to
them.
A social enterprise may be a sole trader, a general partnership, a limited partnership, a limited company or a co-operative. In addition, a social enterprise
must fulfil the following requirements:
1) at least 30 % of the personnel are
in poor health and/or are unemployed on a long-term basis (the
entrepreneur is included in this
­figure)
The Finnish Ministry of Employment
and the Economy (TEM) maintains a
register of social enterprises. The application form (TM 3.09) for inclusion
in the register is available from TEM’s
website, www.tem.fi.
7
Stages of establishing an enterprise
Business idea What? For whom? How?
Business plan + Cash-flow statements + Profitability calculations
Selection of the form of the enterprise
Resolving licensing issues for the business
Arranging finance
Sole trader
(Toiminimi)
Professional trader
Partnerships
• General partnership
• Limited partnership
Foundation documents:
• Articles of association
Limited company
• Private (Oy)
• Public (Oyj)
Incorporation
documents
• Memorandum of
association
• Articles of association
Co-operative
Foundation documents
• Memorandum of
association
• Articles of association
•Copy of the constitution
•Minutes of the Board meeting; elections for the Chairman of the
Board and the Chief Executive Officer
Registration of a new enterprise
It is possible to apply for entry to the Finnish Trade Register and the records
of the Finnish Central Tax Administration using the same form
Insurance
Organisation of accounting
Set-up of an enterprise includes all of the stages mentioned above,
but often the various stages are sorted out at the same time.
8
Becoming an
Entrepreneur in Finland
Turning an enterprise idea
into a business idea
An enterprise idea indicates what the
new enterprise intends to produce. The
enterprise idea is defined in more detail
and gradually shaped into a business
idea. The business idea indicates what
the enterprise will do and to whom it
will sell, how the enterprise will implement these things, and in what markets
it will operate. The business idea answers the questions What? To Whom?
How?.
Think about whether your products
will be able to succeed in the marketplace? Which markets will you operate
in? What is different about your business idea? Make sure you consider
your business idea from the point of
view of the customer in particular. The
product (goods or a service or a combination of these) must be something
that the customer is prepared to pay for.
Determining customers’ needs is important so that it is clear what qualities
they value. Is your product, for example, more effective, cheaper, of higher
quality, more pleasant or simpler than
that of your competitors?
You will get the best insight when
you test it in practice, for example with
a small market survey. The most genuine feedback about your product will
come from your potential customers.
Nevertheless, an opinion poll does not
always necessarily tell the whole truth
about customers’ buying habits. Market research can also be bought from
external experts, but it is generally expensive.
The business idea
must be viable
Implementation of the business idea
requires know-how on the part of the
entrepreneur(s) as well as capital that
is needed for working capital and initial investments. Know-how and familiarity with the field can be acquired via
training, work experience and recrea-
tional pursuits. Be realistic in terms of
demand for goods or services. You will
improve your chances of success with
careful planning. Consider the following:
• customer benefit: what the customer gets, where the customer uses
the product, why the customer purchases it
• image: why the customer buys
from this enterprise, what kinds
of mental pictures are associated
with the enterprise or its products
• products: what is produced or supplied, how does it differ from the
competitor’s products, what is the
price, what kind of packaging is
used and how is the product delivered, is advice required via the
internet, for example?
• customers/customer groups: who
are the customers, where are they
and how many are there, how are
they reached, how much are they
prepared to pay, how will they pay
• mode of operation: will products
be created in-house or will their
production be subcontracted, how
will products be marketed, how will
they be sold
• resources: business premises,
machines and equipment, capital
invested, know-how and experi-
ence of the entrepreneur and the
employees.
• market size
Industry and competitive
situation
Industry refers to that field in which the
enterprise operates, for example catering (restaurants and cafes), financial
services (banks), building or cleaning.
In some fields, there are a lot of operators, i.e. there is a lot of competition. In
such cases, the opportunities to make
a profit are small, because the entrepreneurs must sell their product cheaply. The lower the novelty value and the
more established the field, the greater
the competition faced. That is greater
the number of competitors offering a
similar product.
Try to find an innovative business idea!
The more unique the product, the less
competition you will face. On the other
hand, in such cases it is difficult to estimate the profitability of the business
or compare the business idea to other
operators, because there are only a few
other operators. In such circumstances,
the size of the market and the structure of demand must be estimated, and
profitability calculated on the basis of
the estimates.
9
Business plan
What is a business plan?
Business plan is a formal set of business goals, the reasons why they are
believed attainable and the plan for
reaching these goals.
Business plan refers to a written plan
for the business. It describes how the
business idea will be implemented in
practice: the operating environment of
the enterprise, and its working practices
and objectives. It is a comprehensive
and detailed presentation with a specified timescale. The business plan also
includes longer-term objectives and
quantitative targets in the form of profit
budgets and cash-flow statements.
The plan goes through the features of
the product, the customer groups, the
competitive environment in the marketplace, and training and expertise of the
entrepreneur(s) as well as how the enterprise intends to market its products.
The business plan also estimates, with
the aid of calculations, profitability and
the sum of money that is needed for
starting up the business’s operations
(investment requirement).
A good plan also highlights the risk factors that may affect the success of the
business.
In addition, the business plan is a tool
that enables entrepreneurs to plan, and
it can also be used in negotiations with
possible investors, business partners,
lessors or suppliers, for example. With
the help of the business plan, the entrepreneur can prove that the enterprise
will succeed when, for example, financial-statement data is still not available.
A well prepared business plan gives an
idea of the profitability of a business
and its future prospects, and it helps in
sourcing finance.
Create a business
plan using our handy
online service at
www.business-plan.fi
A business plan is also needed when
start-up funds are applied for from the
Employment and Economic Development Offices or when business subsidies are applied for from the centres for
Economic Development, Transport and
the Environment (ELY).
Start-up funds
from an Employment
and Economic Development Office
External investors
(business angels
and capital
investors)
The business plan
gives an idea of the
profitability of the
business’s operations
Loan finance
- Bank loan
- Finnvera loan
- other loan
10
Business subsidies
- ELY centre
- TEKES (Finnish Funding
Agency for Technology
and Innovation)
- Foundation for Finnish
Inventions
Becoming an
Entrepreneur in Finland
Elements of the
business plan
It is worth revising and updating the
business plan on a regular basis.
Model plan
1) Description of the business idea:
The business idea says what the business will do, to whom it will sell its products, and how the business will implement these things. What is the novelty
value of your business idea (i.e. what is
new about it) and why would customers
be interested in your product? A SWOT
analysis should also be included in this
section, see page 15.
2) Description of expertise:
Expertise among the entrepreneur and
the employees must support the business’s operations. List their educational backgrounds, their work experience
and their strengths and weaknesses.
3) Description of the product:
Describe the product critically from the
customer’s point of view. Explain the
product’s features compared to the
competitors’: pricing, advantages, uses
and weaknesses.
4) Customers and customer
requirements:
Describe who your customers are,
how many there are, where they are,
on what basis they decide to make a
purchase, what customers value in your
product. What is the customer problem
or requirement for which you have a solution?
5) Industry and competition:
Describe your industry and the competitive environment. Will you bring innovation (something new) to the industry? Or will you offer the same as your
competitors? Try to stand out from the
competition. Are you able to set up, for
example, an organic hairdresser’s instead of a conventional hairdresser’s?
Analyse the strengths and weaknesses
of your key competitors, and compare
your own business idea against them.
6) Scope and development
of the market:
Give details of the number of customers in your product’s market, the competitive environment and the prospects
for growth. Explain which markets you
are targeting: a certain area, the domestic market, Europe or the global
market. Could your business possibly
be extended to new markets later on?
How would this happen? Explain what
obstacles there may be for entry to the
marketplace: regulations, constraints,
customs duties and other risk factors.
7) Marketing and advertising:
Write down what marketing measures
you would use to reach your customers and inform and convince them of
the benefits of your own product. Also,
pay attention to how your customers
will find you, for example via the internet. How will you direct your advertising
at specific customer groups? Consider
what the look and name of your enterprise, amongst other things, say to the
customer and what your enterprise’s
brand comprises. How do they stand
out from the competitors? How do you
arrange your sales work?
8) Risks:
A business’s activities are subject to all
kinds of risks. Analyse the business’s
risk factors in the short- and the longterm. How will you get a key person to
commit to your business and what will
happen if (s)he decides to leave? Can
your business idea’s features be copied? And how sensitive is your business
idea to fluctuations in the economy?
Risks can not be completely eliminated, but with effective planning they can
be reduced.
9) Intellectual property rights:
Plan for the safeguarding of your key
ideas in accordance with legislation
on intellectual property rights. This will
help you reduce the risk from copying.
Do you need, for example, a patent
for a technical invention (which lasts
20 years), utility-model protection (i.e.
a four-year ”small patent”), trademark
protection (an identifying mark for a
good or service that is registered for a
specific area, such as the Apple trademark) or a design right that protects
the appearance of an item? Only copyright protection does not need to be
applied for separately. Non-disclosure
agreements are one way to prevent a
customer or collaborative partner from
telling others about your unprotected
business idea.
11
10. Estimates: Funding, Profitability and Sales
a) Investment CALCULATION: This is used to show the
sources of funding and the expenditure requirements for
the business in its initial stages. Expenditure requirements
include those investments that must be made in order to
launch the business’s operations. Among other things, initial
stock purchases, machines required for production, registration fees and security deposits as well as working capital
for a 3-month period (for instance) would be included in expenditure requirements. In the working capital provision, an
estimate is made of those fixed costs (wages and salaries,
rental, insurance, bookkeeping, etc.) that must be paid even
when the business does still not generate sufficient sales to
cover costs. For this reason, working capital is added to investment requirements for the initial stages. In addition, in
the funding calculation, the sources of funding are shown for
an amount equal to the investment sum; the sources of funding must cover the expenditure requirements. The sources
of funding may comprise shareholders’ equity and property
given as a capital contribution, loans, business subsidies and
external equity investments. Remember that business startup funding should not be regarded as one of these sources
of funding as it is intended for the entrepreneur’s own subsistence!
EXPENDITURE REQUIREMENTS
Eur
Decoration costs
1,200
Means of production
2,000
Equipment installations
Computers and software
500
1,500
Car
Phone/fax/internet
200
Office supplies
300
Furniture
1,000
Property given as a capital contribution
(existing machines, work tools and supplies)
500
Marketing investment
800
Security deposits
1,500
Initial stock purchases
1,000
Cost of establishing the business
Working capital
Cash reserve
TOTAL EXP. REQUIREMENT
SOURCES OF FUNDING
100
3,200
700
14,500
Eur
Equity
Share capital
2,500
Personal cash investments
5,500
Property given as a capital contribution
500
Loans from shareholders
Loan capital
Bank loans
6,000
Finnvera loans
Other loans
TOTAL SOURCES OF FUNDING
12
14,500
Becoming an
Entrepreneur in Finland
b) PROFITABILITY CALCULATION:
The profitability calculation is used to
estimate where the break-even position
(critical point) arises for a given price
level and profit margin, as sales volume
is varied. This can be used to analyse
whether a sales target is realistic. The
sales target (net sales) can also be calculated as a monthly, weekly or hourly
sales target. Alternatively, it is possible
to analyse whether it would be worthwhile changing the margin and sales
price, if the sales volume seems unrealistic. Thus, a simple sensitivity analysis
can be created, showing how big an effect there is on the profit forecast if the
price is changed.
c) SALES CALCULATION:
In the sales calculation, the minimum
invoiced sales target indicated by the
profitability calculation can be apportioned among the various customer
groups. This makes it easier to assess
the importance of the customer relationships; any discounts and variable
costs for products being sold shall be
taken into account.
Example of a profitability calculation:
= Target profit
(incl. Entrepreneur’s own target salary)
+ Loan repayments
INCOME AFTER TAXES
Taxes 18%
= Funding requirement
+ Loan interest
€ 24
1,600
19,200
329
3,951
1,929
23,148
159
1,908
Costs relating to premises
545
6,537
Repairs and maintenance
30
360
Communication costs (phone, internet, etc.)
80
960
Office expenses
20
240
Travel and car expenses, daily expense allowance
50
600
Marketing expenses
200
2,400
Bookkeeping, auditing, tax returns, etc.
100
1,200
30
360
Fixed costs
Self-employed persons’ pension insurance
15.9 % (annual work-related income EUR
12,000)
Wages and salaries
Indirect remuneration costs
Leasing payments
Unemployment fund, trade association, etc.
100
1,200
B. TOTAL FIXED COSTS
Other costs
1,314
15,768
SALES MARGIN REQUIRED (A+B)
3,270
39,240
915
10,980
4,185
50,220
Cleaning
(evenings and
weekends)
€ 30
Costs
Margin
1,200
324
TOTAL SALES / INVOICED SALES REQUIRED
Sales price
18,000
100
23 472
VAT 23 %
Cleaning
(daily)
1,500
27
NET SALES REQUIRED
Product
Annually
(12 months)
EUR
1,956
A. OPERATING MARGIN (required)
Purchases +materials and supplies (net of VAT)
SALES
CALCULATON
(Monthly)
Monthly
EUR
Window
cleaning
Floor
waxing
Spring
cleaning
963
11,550
5,148
61,770
Other
work
€ 35
€ 40
€ 120
€ 28
€5
€ 10
€ 10
€0
TOTAL
VAT 0%
€ 24
€ 30
€ 30
€ 30
€ 110
€ 28
Sales quantity
80 units
32 units
12 units
8 units
10 units
8 units
Total sales
€ 1,920
€ 960
€ 420
€ 320
€ 1,200
€ 224
€ 5,044
€0
€0
€ 60
€ 80
€ 100
€0
€ 240
Total purchases
13
MONTHLY
ANNUAL
(12 MTHS)
NET SALES (VAT 0%)
€ 5,044
€ 60,528
NET SALES REQUIRED
€ 4,185
€ 50,220
DIFFERENCE
€ 859
€ 10,308
You should also note that it is good for
the entrepreneur to take some holiday,
and because of this annual sales will be
lower (around 11 months’ worth).
ss plan
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14
Becoming an
Entrepreneur in Finland
SWOT analysis
The SWOT four-field analysis is a simple and widely used technique for analysing business operations. A SWOT
analysis shows the Strengths, Weaknesses, Opportunities and Threats for
the business idea, the entrepreneur
and the enterprise. It is suitable for use
in all forms of enterprise. The review
may concern either the whole business
or just part of its operations in greater
detail.
The top row of the table shows the
current situation and issues within the
business. The bottom row represents
the future and external matters. The left
side shows positive factors, while the
right side shows negative factors.
The analysis helps with examining
how the strengths can be developed,
how the weaknesses can be eliminated, how the opportunities can be exploited and how the threats can be
countered.
Example of a SWOT analysis
Strengths
• strong expertise
• experience
• knowledge of the industry
• innovative product
• international contacts
Weaknesses
• weak language skills
• insufficient personal funds
• no experience of working as
an entrepreneur
• family situation
• new culture
Opportunities
• globalization
• potential for growth
• new products/services
• new market areas
Threats
• entrepreneur’s ability to run
the business
• increasing competition
• changes to legislation
• political situation
Risk management
There are many ways in which an enterprise may be
harmed or suffer losses, i.e. the business is exposed
to various risks. However, risk in a business may also
be an opportunity. The entrepreneur must be prepared
to take risks in order to succeed. Risks must be identified, and the business must tackle them, prepare for
them and protect itself against them. In other words,
the risks must be managed.
The risks in a business may be,
for example, business risks, personnel-related risks, contract and
liability risks, data-security risks,
product risks, environmental risks,
risks from interruptions to operations, and risks from crime and
fires. Good risk management is
anticipatory, it takes all the available information into account, and
it is systematic and well organised. Further information about
risk management is available from
www.pk-rh.fi.
15
Marketing and advertising
Success in the marketplace demands
good knowledge of the operational environment and the competitors, and it
also requires that the business stands
out from its competitors. In marketing,
a business strives to influence the consumer’s idea and experience of the
goods or services provided by the business ¬– “we are better than our competitors”. Marketing is indeed an important part of an enterprise’s planning.
Firstly, it is good to know the difference
between marketing and advertising.
In marketing, a business strives to influence the behaviour of consumers.
The aim of marketing is to create, maintain and develop customer relationships. Maintaining customer loyalty is
important, because acquiring new customers is often much more expensive
than keeping old ones. Loyal key customers also usually create the majority
of sales volume.
With advertising, the business strives
to directly influence the purchasing decisions of the consumer and to make
the product well-known. A satisfied cus-
PROMOTION
• advertising
• sales campaigns
• sales personnel
Source: Kotler Philip (1980) Principles of Marketing. Prentice Hall.
16
tomer will come back readily. But if the
advertising does not provide the right
information about the product’s features, it may be that the customer will
not return.
A good work-tool to help plan marketing
is the so-called “marketing mix” model. It comprises the 4 P’s based on the
corresponding English words: Product, Price, Place and Promotion. From
these, you can choose the marketing
mix desired according to your customer
target group, and you can focus on using these in the marketing of your enterprise.
Product: The goods or services and
their features, the product name, guarantees/warranties, novelty value and
how the goods/services stand out from
competing products.
PRODUCT
• features
• product name
• innovation
• warranty/guarantee services
FOUR P’s
for planning
marketing
PLACE
• sales area
• distribution channels
Price: The monetary or other compensation paid by the customer for
the product. The determining factors
include the competitive environment
in the marketplace, market share, the
customer’s perception of the product’s
value, production and material costs as
well as discounts.
Place: The location where the product
may be bought. Often, the term “distribution channel” is used. This refers
to both concrete business locations
(i.e. stores) and virtual business locations on the Internet, such as an online
store.
Promotion: All means of communication via which the marketer, i.e. the enterprise, can promote its product. This
includes, amongst other things, advertising, communication at the point
of sale or on the internet, sales campaigns, public relations and the information passed between customers via
word-of-mouth.
PRICE
• identity
• competitive
environment
• production costs
• customer’s perception
of product value
Becoming an
Entrepreneur in Finland
Segmentation of customer
groups and selection of a
­target group
It is good for a business to investigate
which product group it wishes to sell
a product to. Even though acquiring a
large group of customers is tempting,
it is worth focusing on the most important customer group that generates the
greatest sales for the enterprise with
the least effort. Marketing to a certain
segment (i.e. group) will reduce the
number of customers, but at the same
time it will increase the effectiveness
of marketing. There are various ways
of specifying a certain segment. For
example, age, place of residence or
purchasing power, i.e. how much money customers have available, can be
used. When advertising children’s toys
for instance, it is worth focusing on areas where there are lots of families with
children or on a baby magazine that is
read by new parents.
It is worth segmenting a market if:
• the market has enough potential
customers
• a group’s customers have common
features and requirements
• the customer groups differ from
each other
• marketing will reach the
chosen segments economically
and e
­ ffectively.
Selection of
advertising media
It is worth looking for those media for
your business, via which you can get
a message, i.e. your advertisement, to
the desired recipient as economically
and effectively as possible. Familiarise
yourself thoroughly with the main features and prices of the various advertising media. The prices may vary strongly
depending on the media.
The various media include
• newspapers, local and free papers,
and magazines
• the Internet
• television
• outdoor advertising and business
advertising media
• radio
• films (including product placement).
Direct marketing is one common way to
reach customers. For example, a pizzeria entrepreneur may distribute adverts
him/herself to letterboxes of residents
in the neighbourhood. All brochures,
business cards, etc. to be distributed directly to people either in person or electronically are forms of direct-marketing
media. However, in direct marketing,
you must take account of authorisation
issues, i.e. whether you need customer authorisation for marketing or, in the
case of minors, parent/guardian authorisation, if you use e-mail for example.
A really important marketing channel is communication among people,
i.e. so-called word-of-mouth. Customers often tell each other about their
good and bad experiences, so information about a product spreads on Facebook, for example. In marketing, it is
also worth paying special attention to
how you treat a customer in a service
situation. For example, are you able in
a sales situation to provide added value
for a product, which creates a positive
image (amongst other things, appearance of packaging, discounts, home
delivery, items thrown in for free)? Or
how, for example, will you deal with
complaints?
The marketing plan for the business will help make the marketing coherent and clear. Using the plan, you
can monitor fulfilment of the objectives
and develop marketing in the future. It
is worth reviewing both the marketing
A really important
marketing channel is
communication among
people, i.e. so-called
word-of-mouth.
mix and the customer groups at regular intervals. For example, you can
consider the following questions: have
you achieved what you wanted with the
measures implemented? Or should you
make changes or adapt your style of
marketing or advertising? Has the key
customer group changed its purchasing behaviour (changed requirements)?
Who are your customers now, and who
do you want as customers in the future?
And what are your competitors doing?
Nowadays, people search for products and businesses using the Internet. Web visibility can take the form of
ready media space on chargeable internet search services, a business’s own
website or an online store. If you introduce your own website, it is important
to remember to update and maintain it.
An online store, like other internet pages, is a good way to collect information
and build a customer register. You must
always tell customers what you are using data for and how they can prevent
its use for purposes other than that desired by them.
Trademark
A trademark is the characteristic feature
that distinguishes the goods and services produced or provided by a business
from the products of other businesses.
It is worth the enterprise protecting
its trademark by registering it with the
National Board of Patents and Regis-
17
tration of Finland. After registering it,
the business has the exclusive right
to use the trademark to represent its
goods or services. The trademark may
be, for instance, a word or a figure or
a combination of these. It may also be
a slogan, a combination of letters or a
sound or some other emblem that can
be represented graphically. A trademark
granted in Finland gives protection only
in Finland. If the entrepreneur wishes to
protect his/her products abroad too, (s)
he must arrange this separately.
Pricing
Before you price your products, consider whether your service is better or
of higher quality than the competitors’.
Thus, will you sell your products at a
higher or lower price than your competitors? What added value are customers
prepared to pay for? Will they pay, for
instance, for the image, product quality, good customer service, a warranty/
guarantee or location?
Think carefully about the price level, and set it so that it is in line with
the product image. A quality, i.e. highpriced, product requires a high-quality
setting. When you have started to offer a product, negotiate on its price and
then sell it at a certain price, it is very
difficult in the future to raise the price.
Also remember that many customers
will expect there to be “room for negotiation” on the price.
The pricing of expert services can
be based on time required. However,
the hourly rate does not tell the customer the total price, because they will not
know how much time will be required
for the work. Use a pricing model as
an aid in which you give details of the
work contents and the time used for the
work.
18
Internet network ID (domain)
offensive terms or expressions that incite people to commit crimes. The domain name can be ordered directly from
a service provider or with the help of a
so-called web hosting service, in which
case you get everything you need all
at once. The Finnish Communications
Regulatory Authority (www.ficora.fi)
grants use of the Finnish country code
.FI.
In pricing, you can also use devices such as introductory offers, contract
prices, “fast purchase” offers and special-offer periods (for example during a
quiet period). With these devices, you
can set your basic tariff at the level you
desire. Examples of pricing models are
restaurant lunch prices or early booking
rewards at travel agents. There are also
customers who want to pay the price
specified by the tariff without any negotiations or bargaining.
Pricing is an important competitive
factor but not the only one. Often people only think about price competition,
i.e. they sell at a cheaper price than
their competitors. Think carefully about
what is the right price for your product.
Part of the product’s sales price must
represent a profit for your business. If
you sell at a higher price (i.e. with a
greater profit margin), you don’t need to
sell so many to make a profit. Whereas if the margin is lower, you must sell
a higher volume to achieve the same
profit level.
A domain name is a worldwide-web address that is written in the address field
of a web browser. The domain name
does not need to be the same as the
name of the enterprise. It might be, for
instance, just part of the name or an abbreviation, preferably something short
and memorable.
The domain name must not be
based on the protected name or trademark of another party or the name of an
actual person, and it must not contain
EXAMPLE ON PRISING
Example: You sell a product that costs
EUR 28 to produce. Your competitor
sells the same product to customers at
a price of EUR 55 (incl.VAT). Look what
effect it has on the profit margin if you
sell the product at a price that is 20%
lower than your competitor’s.
Always keep your prices on
view to your customers. A good
price list tells the customer both
the product price and what the
price includes. The consumer
will only be interested in the
final price, including VAT. The
corporate customer will be
interested in the price net of
VAT, because VAT on purchases
can be deducted from VAT on
sales.
Competitor’s
price
EUR
Price that is
20 % lower
EUR
Sales price
55.00
44.00
- VAT 23%
- 10.28
- 8.23
Price net of VAT
44.72
35.77
Purchase price (VAT 0%)
28.00
28.00
Profit margin
16.72
7.77
Becoming an
Entrepreneur in Finland
Sales margin
Price your products correctly. How
much sales margin is generated for
each product or service sold? Is the
margin sufficient given the quantity
sold? Also, remember the fixed costs
and total time usage. With the help of
the profitability calculation, you can get
a good idea of the lower limits for your
pricing.
Example of the calculation of sales price
Total costs of the product
EUR
150.00
+ Target sales margin (35 %)
52.50
= Sales price net of tax
202.50
+ VAT 23 %
46.58
= Sales price including tax
249.08
Example of the schedule according to which the business
gets money from its sales:
Customer
orders the
product
Business
sends the
product to
the customer
Business
sends an
invoice to
the customer
Customer
pays
Money
arrives in the
business’s
account
When the customer orders the product,
depending on the business, 1 - 5 days
may elapse before the product is sent to
the customer. Often, the invoice for the
product is sent 1 – 5 days after delivery.
The terms of payment may be 7 – 21
days. If the customer pays the invoice
on the due date, the money will reach
the business’s account two days later.
In other words, even in the best-case
scenario, almost two weeks will pass
from the order date before the money
reaches the business’s account.
19
Funding for a new business start-up
In the initial stages of a business, money is almost always needed to start up
operations. The amount of money initially required depends on the business
idea, and it fluctuates greatly depending
on the industry. If operations are based
on selling the entrepreneur’s expertise
as a service and the use of his/her time
(for example, in interpreting and translation work), the initial investment required is much less than if a restaurant
or a company manufacturing goods is
being established. The initial investment enables establishment of the enterprise and the start up of operations.
When the business is profitable, future
investment requirements can be covered by the income generated by the
business’s operations.
With the help of the funding calculation, the investment requirements and
the sources of funding in the early stages will be determined. The sources of
funding are now considered.
Equity capital
Entrepreneurs may invest in the business their own money or other assets
that they own and possess (property
given as a capital contribution). The entrepreneur’s own savings, work tools or
machines are referred to as self-financing. Generally, lenders (i.e. banks) require that around 20 % of the finance
provided comes from the entrepreneur
before they consider granting a loan.
Equity capital can also be invested in
the business by the entrepreneur’s
friends, family members and acquaintances. As a result, they can gain a
share of ownership in the business.
Loans
Normally, an entrepreneur needs, in
addition to equity, external capital, i.e.
loans. Loan financing is mainly granted
by the commercial banks and the special financing company, Finnvera. In20
Capital investments
Loan financing is
mainly granted by the
commercial banks and
the special financing
company, Finnvera.
A capital investor (business angel or
capital-investment company) invests
money in a target business in return
for a share of ownership (typically less
than 50 % of the shares). Capital investors take a significant risk when they
make an investment, and therefore they
expect a significant return from the investment as compensation. The terms
of the investment will be specified in detail in the shareholder agreement.
Business subsidies
terest is paid on a loan, which may be
linked to the Euribor reference rate, for
instance. In addition, the finance provider must obtain a return for itself, i.e.
an interest margin, and a handling fee
for the loan. The loan repayment terms
vary depending on the finance provider. Often the banks require a real security for the loan capital, such as the
pledging of a home or other assets. You
should always ask many different banks
for quotes on loans.
Also, funds from other external investors, such as acquaintances or family
members, may be capital in the form
of a loan that must be paid back with
interest. It is always worth agreeing in
writing on loans and their associated
interest and repayment terms.
It is worth the entrepreneur remembering that short-term financial aid can also
be obtained by paying for supplies later
(supplier credit), leasing, bank accounts
with overdraft facilities, and credit
cards. Leasing finance is long-term
rental where the item for which finance
is provided acts as security. However,
in the cases mentioned above, the entrepreneur must pay attention to the annual interest rate, which may be substantially higher than a normal bank’s
interest rate, i.e. the loan will be more
expensive.
The Centres for Economic Development, Transport and the Environment
(ELY centres) can grant subsidies for
business ventures and the planning of
them, depending on the line of business and the location of the enterprise.
Business subsidies or aid are generally
discretionary and require that the business’s operations are profitable. There
is no need to pay back the subsidy or
aid. Business aid must be applied for
and a decision received before any investment is made. Aid for purchases
made is generally only paid in arrears.
(www.ely-keskus.fi)
Support for innovative business ventures can also be obtained from the
Foundation for Finnish Inventions
(www.keksintosaatio.fi) and the Finnish Funding Agency for Technology and
Innovation (www.tekes.fi).
If the business is geared towards developing countries, it is possible to obtain
a subsidy with the help of the Finnpartnership business-partnership programme. (www.finnpartnership.fi)
When planning the business, it is good
to remember that its operations must
not be reliant on subsidies. The business must be profitable without any
aid.
Becoming an
Entrepreneur in Finland
Start-up grants
Business start-up grants are a form of
discretionary support that can be paid
to someone starting up as an entrepreneur, and they are available in the initial stages of a business operating on
a full-time basis. Start-up grants help
with the entrepreneur’s subsistence at
a time when the business is only just
starting its operations and establishing
itself.
It is worthwhile for someone considering setting up a business to contact
their local Employment and Economic
Development Office (www.mol.fi) in
good time before starting their operations and to establish the possibilities
for obtaining start-up grants. Operations must not be commenced before
the Employment and Economic Development Office has made a decision on
the start-up grants.
Start-up grants are taxable income, i.e.
tax is payable on them. Start-up grants
can be granted at the same time to several entrepreneurs who are working in
the same start-up business.
Conditions for granting
­support
Start-up grants can be granted if the
entrepreneur is able to establish profitable business and (s)he has experience as an entrepreneur or has business training. The support must be
necessary for the entrepreneur’s subsistence. The entrepreneur must work
in the business full-time.
An application for start-up grants must
be accompanied by the business plan
and profitability calculation. Help with
preparing these can be obtained from
business advisory experts. In addition,
a so-called tax-liability certificate is required, i.e. a statement on whether the
applicant has outstanding taxes to pay.
A certificate may be ordered via the
website of the Finnish Central Tax Ad-
ministration (www.vero.fi/verovelkatodistus), for example, or one may be
collected from a tax office.
Start-up grants can be paid for a period
of up to 18 months. However, usually
start-up grants are granted for a period
of six months. After this period, start-up
grants may be granted on a case-specific basis so that the entrepreneur’s
livelihood is secured.
In 2011, the amount of start-up grants
available is around EUR 550-880 per
month gross (i.e. tax is still payable on
this sum). Start-up grants are paid once
a month retroactively and an application must be made to the Employment
and Economic Development Office for
this.
The conditions of granting ­
start-up grants are that:
1) the applicant has experience as
an entrepreneur or the necessary
training in entrepreneurship, which
can also be arranged while support
is paid
2) the applicant has, in other respects, sufficient skills for the busi-
ness operations that (s)he is planning; the nature of the operations
is taken into account here along
with how demanding they are
3) the business is able to operate
profitability
4) the applicant is not receiving state
support for his/her labour costs
5) daily unemployment benefit or unemployment assistance (as specified by the Finnish Act on Unemployment Benefits) is not paid to
the applicant for the same period
6) the business’s operations have not
been started before a decision has
been made on the granting of support
7) it would clearly not be possible to
commence operations unless support was granted to the applicant
8) the provision of support will not
distort competition between those
offering the same products.
21
Licensed industries
In Finland, there is freedom of trade.
This means that here you may engage
in business operations that are lawful
and in accordance with good practice
without requiring a licence from the authorities. However, for certain industries, you do need a licence for the sake
of the community, the environment and
consumer safety. In other fields, you
must notify the authorities of your operations, even though an official licence
is not required.
Licences are granted by local authorities (municipalities and cities) and regional administration offices along with
government departments, local environmental-protection authorities and
other licensing authorities.
Before operations are commenced, it
is always important to check whether a
special licence or declaration is needed
for the business and what else is required from a trader in this field. To acquire a licence the applicant must gen-
erally be professionally competent and
qualified to enter into legal contracts
and have a good reputation. Also, the
applicant’s financial situation will have
an impact on whether (s)he can obtain a licence. The licences required
by businesses that provide a service
are shown on the following webpages: www.yrityssuomi.fi/palveluyritykset.
A licence is generally for a fixed period, and it can be revoked if the person
does not comply with the provisions of
the licence. Application for a licence is
usually subject to a charge. In some
cases, a licence is needed from many
different authorities.
For example, in the catering industry,
hygiene certification and licences to
serve food and alcohol are required,
and declarations must be made to the
health inspector, the rescue services,
building-regulation departments and
the police, amongst other things.
The National Supervisory Authority for
Welfare and Health in Finland, Valvira
(www.valvira.fi) grants the right to carry out work in the healthcare profession
in Finland to healthcare professions
trained abroad, subject to application.
Such people include doctors, nurses,
dentists, qualified chemists, midwives,
speech therapists and psychologists.
Import-related licences are granted by
Finnish Customs, www.tulli.fi.
The Finnish Food Safety Authority,
Evira (www.evira.fi) monitors the safety and quality of food products. Food
premises, such as restaurants, shops
and kiosks must be approved by the local food authority before operations begin. The approval procedure specified
by the Finnish Health Protection Act
concerns, amongst other things, hairdressers’ and barbers’ salons, beauty
or foot-care premises and tattoo businesses. The local health protection authority is responsible for approving such
businesses.
For playing music (radio, TV, CDs, live
music) in public places, such as a business’s customer premises, it is necessary to pay a fee to the copyright organizations. The Finnish Composers’
Copyright Society, Teosto (www.teosto.fi) collects fees payable to composers and lyricists, and the Copyright
Society for performing artists and producers of recordings, Gramex (www.
gramex.fi), collects fees due to musicians, singers, conductors and producers of recordings.
In the municipality or the city, there
may be different regulations concerning outdoor advertising and sales, for
instance.
N.B. Always establish whether you
need a licence before you commence
operations!
22
Becoming an
Entrepreneur in Finland
Industries where a licence or notification of intention to trade is required
Industry
Licence or registration authority
Link
Inspection of vehicles
Finnish Transport Safety Agency - Trafi
www.trafi.fi
Serving alcoholic drinks in restaurants, etc. and
the sale of alcoholic drinks (medium-strength
beer, cider and very light wines) in food stores
The Finnish Regional State
Administrative Agencies
www.avi.fi
Manufacture and import of alcoholic drinks
National Supervisory Authority for Welfare
and Health - Valvira
www.valvira.fi
Sales of firearms and ammunition
Finnish Police Administration
www.intermin.fi
Pharmacies, pharmaceutical plants,
pharmaceutical wholesale businesses
Finnish Medicines Agency - Fimea
www.fimea.fi
Estate agents
The Finnish Regional State
Administrative Agencies
www.avi.fi
Driving schools
Finnish Transport Safety Agency - Trafi
www.trafi.fi
Right to use sponsors’ marks on
precious-metal products
Finnish Safety Technology Authority - Tukes
www.tukes.fi
Mining operations
Finnish Ministry of Employment and the
Economy
www.tem.fi
Credit, financing and investment activities
Financial Supervisory Authority
www.finanssivalvonta.fi
Transport of patients
The Finnish Regional State
Administrative Agencies
www.avi.fi
Electrical and lift contractors
Finnish Safety Technology Authority - Tukes
www.tukes.fi
Goods traffic, taxis, public transport
Centres for Economic Development,
Transport and the Environment (ELY)
www.ely-keskus.fi
Telecommunications
Finnish Communications Regulatory
Authority - Ficora
www.ficora.fi
Sales of tobacco
Local authorities
www.kunnat.net
Hiring of labour
Regional administration offices,
responsibility for occupational safety
www.avi.fi/tyosuojelu
www.tyosuojelu.fi
Large-scale industrial processing and
storage of hazardous chemicals
Local environmental-protection authority
www.kunnat.net
Minor industrial processing and storage
of hazardous chemicals
Rescue services
www.pelastustoimi.fi
Insurance brokerage, insurance companies
Financial Supervisory Authority
www.finanssivalvonta.fi
Package-tour companies
Consumer Agency
www.kuluttajavirasto.fi
Security companies
Finnish Police Administration
www.intermin.fi
Private healthcare services
The Finnish Regional State
Administrative Agencies
www.avi.fi
Private schools and day-care centres
Local Authorities, The Finnish
Regional State Administrative Agencies
www.kunnat.net
www.avi.fi
23
Forms of enterprise
In Finland, it is possible to carry out
business operations in the following
forms of enterprise: sole trader, general
partnership, limited partnership, limited
company, co-operative, branch of a foreign enterprise. The following forms of
enterprise are less common: Societas
Europaea, European co-operative society and European Economic Interest
Grouping (EEIG).
When determining the most suitable
form of enterprise for you, business
advisory experts will help you.
Factors affecting which form o
­f
enterprise is selected:
• number of people establishing ­
the business
• the need for capital and its
availability
• responsibilities and decision
making
• operational flexibility
• continuity of operations
• attitude of finance providers
• profit sharing and covering losses
• taxation
Sole trader (own firm)
An individual with permanent domicile
in the European Economic Area (EEA)
may operate as a sole trader in Finland. A person who lives outside the
EEA needs a licence from the National
Board of Patents and Registration of
Finland (www.prh.fi) for establishing a
business.
Operating as a sole trader means
that the person carries out business
operations alone or together with their
spouse. Even though the couple set up
the business together, the business is
registered only in the name of one person.
The entrepreneur him/herself
makes decisions, and (s)he is fully liable for the business’s commitments
(concerning loans, for example) means
all his/her assets are at risk. Thus, the
24
entrepreneur is personally liable for the
business’s losses, but (s)he will also receive any profits made from the business’s operations.
The firm will not have a Board of
Directors or a Managing Director, and
audits are not required.
The entrepreneur may invest money in the business, but this isn’t compulsory either. The entrepreneur is not
able to pay a salary to him/herself, to
his/her spouse or to his/her children under the age of 14, but money may be
withdrawn from the business account
as so-called personal drawings. Tax is
paid annually based on the business’s
result for the period.
Even though the entrepreneur owns
the firm, his/her personal finances must
be kept separate from the business’s finances with the help of bookkeeping.
Sole-trader entrepreneurs can be
divided into professionals and traders,
both of whom do work on their own account. The difference is that professionals generally do work independently
without using external manpower. A
trader may have external manpower,
and the bookkeeping is more wideranging than for a professional.
A professional is an entrepreneur
who can operate in his/her profession
without a permanent workplace and
without external manpower. The biggest difference from a trader is the right
to use single-entry bookkeeping. A professional may be, for instance, a seamstress, carpenter or interpreter.
A trader is an entrepreneur who has
a permanent workplace or who can employ other staff. A trader must use double-entry bookkeeping.
Establishing your firm
Establishing the firm is simple. Separate documents are not necessary.
However, you must notify the Finnish
Trade Register and the Finnish Central Tax Administration of commencement of your operations. This is done
using the Y-3 form available from the
website, www.ytj.fi. There is a charge
for registration, and for the year 2011
this is EUR 75. You may begin operating immediately once you have notified
these organisations, unless your trade
requires a licence or you are applying
for business start-up funds.
Who is a firm suitable for?
A firm is easy to establish and the simplest of the forms of enterprise to establish. Often, a firm suits a small-scale
entrepreneur who is just starting off.
Partnerships: general partnership and limited partnership
To establish a partnership, you need at
least two partners (i.e. people). Generally, these are natural people, but a
partner can also be a legal person (an
enterprise or organisation). There are
two types of partnership: general partnerships and limited partnerships.
In general partnerships, at least
one partner, and in limited partnerships,
at least one active partner must have
permanent residence, or if the partner
is a legal person, domicile, in the EEA
area. If they don’t, for all partners that
are not in the EEA area, a licence must
be sought from the National Board of
Patents and Registration of Finland.
The partners invest a contribution
in the partnership, and this will consist
of money, assets or work. In a general
partnership, a contribution in the form
of work from partners will suffice as an
investment. In a limited partnership,
money or other assets are required
from a sleeping partner as a contribution. However, the law does not specify
how large this contribution must be.
In a general partnership, all the
partners are fully liable for the partnership’s commitments, meaning their personal assets are at risk, and they decide together on issues relating to the
partnership unless agreed otherwise.
Becoming an
Entrepreneur in Finland
In limited partnerships (ky), there are
two kinds of partner: active and sleeping. In a limited partnership, there must
be at least one active and one sleeping partner. Active partners are fully liable for the partnership’s commitments,
meaning their personal assets are at
risk, and they decide together on issues
relating to the partnership.
Sleeping partners invest money or
assets of monetary value in the partnership, and they receive interest on earnings. A sleeping partner does not have
the right to participate in the partnership’s decision making, and (s)he is not
liable for issues relating to the partnership, unless specified otherwise in the
articles of association.
Establishing a partnership
The partners create the articles of association which show the partnership’s
business name, its domicile, line of
business, the names and addresses
of the partners and their investment in
the partnership. In addition, there is an
agreement on who has the right to sign
in the name of the partnership, how a
managing partner would be elected,
what is the duration of the accounting
period, how auditors would be elected,
what is the partners’ share of the partnership’s assets and earnings, and how
the articles of association can be terminated or annulled.
The articles of association must be
produced in writing and with great care,
and it is worth using an expert to help
out.
The partnership must be registered
in the Finnish Trade Register and with
the Finnish Central Tax Administration. This is done using the Y2 form.
These are available from the website,
www.ytj.fi. Notification of the partnership must be accompanied by the original articles of association. There is a
charge for registration, which is EUR
180 for the year 2011.
When are partnerships
suitable?
or at a meeting of the board held at a
later date.
If the board of a limited company
comprises less than three members,
at least one deputy member must also
be appointed. At least one of the board
members and one of the deputy members (calculated separately) must have
permanent residence in the EEA area.
If they don’t, a licence must be sought
from the National Board of Patents and
Registration of Finland for all ordinary
members or deputy members who are
from outside the EEA area.
Limited company (oy)
Establishing a limited
company
Partnerships are suitable for family enterprises. You must remember that,
in a general partnership, the partners
and, in a limited partnership, the active partners are liable for the partnership’s commitments together equally. If
one partner makes a commitment, the
others are also liable for it. Therefore,
there must be a very high level of trust
among the partners. However, the liability of the partners can be limited in
the articles of association.
A limited company may be established
by one or more people or organisations. When the company is being set
up, the founders register all the company’s shares. In a private limited company, the share capital must be at least
EUR 2,500. The Finnish Companies
Act does not specify anything about
the residence or domicile of the shareholders, i.e. the founding shareholders
of a limited company may also be from
outside the EEA area.
The shareholders are liable for the
company’s commitments only to the extent of the capital that they have invested in the company, unless they have
guaranteed loans on behalf of the company.
Issues relating to a limited company are decided on by the shareholders.
A person who has more shares also
gets more decision-making power (and
more voting power). A limited company
must have a board of directors that the
shareholders appoint. The board takes
care of management of the company,
and it represents the company. The
board may elect a managing director
for the company, who takes care of its
day-to-day management. However, the
appointment of a managing director is
optional. The managing director can
also be elected in the initial agreement
created on foundation of the company
In order to establish a limited company, a foundation agreement is created,
to which the articles of association are
appended. The articles of association
comprise in their minimal form three
items: the name of the business, its
domicile and the line of business. The
line of business may be shown as general commercial activities, which includes all lawful business operations
(i.e. you don’t have to indicate a specific line of business).
The foundation agreement generally includes details on the members
of the board of directors, the managing
director, audits and the accounting period, as well as the number of shares,
their price and the date of payment.
In addition, the founders of the limited
company allocate the shares.
A limited company must be registered with the Finnish Trade Register
before it becomes legally valid. This
is done using the Y1 form and its appendix. There is a charge for registration, and in 2011, this is EUR 350.
The Finnish Trade Register must be
notified within three months of signing
the founding agreement, otherwise the
foundation of the company becomes
void. The necessary forms are available
from the following website, www.ytj.fi.­
25
Notification of foundation must also be
accompanied by the original foundation agreement and a duplicate copy of
the articles of association, if these do
not form part of the foundation agreement.
Before registration of a limited company, the share capital must be paid
to the bank account of the new company. If shares are paid for using noncash assets, there must be a term in
the foundation agreement stating that
the share subscriber has the right or
duty to pay the subscription price using non-cash assets. Also, in the foundation agreement, there must be a description of the non-cash assets. In the
Finnish Trade Register, there must be
an auditor’s statement on the description of the non-cash asset capital contribution and on whether the assets had
a financial value to the company that
was at least equivalent to the price.
26
This statement may be given either by
a chartered accountant (KHT or HTM)
approved by the Central Chamber of
Commerce of Finland or by a firm of
chartered accountants.
If the company has more than one
founding member, it is worthwhile creating a written shareholder agreement
that explains the relationships between
the shareholders and their relationship
with the limited company. The shareholder agreement helps to control in
advance the legal risks that may arise
in relationships between the shareholders and the company. In this way, unnecessary disputes that impede the
business’s operations can be avoided.
When creating the shareholder agreement, it is worth consulting a legal expert. The shareholder agreement does
not need to accompany the registration
forms.
When is a limited ­
company suitable?
All types of business are suited to being
a limited company.
The limited company is, along with
the firm, the only form of enterprise
that can be established by a single
person. In this case, a second person
is required as a deputy member of the
board. An advantage of limited companies is the limited liability, which is
restricted to the shareholder’s capital
holding, unless a guarantee has been
given on behalf of the company.
For large enterprises, a public limited company is a suitable form of enterprise. For this, the minimum possible share capital is EUR 80,000. With
public limited companies, their shares
are offered to the public and traded on
the stock markets.
Becoming an
Entrepreneur in Finland
Co-operative
A co-operative is an independent association of individuals. The members
manage the co-operative together and
democratically, and by means of it
they realise economic, social and cultural aims. To establish a co-operative
at least three people or organisations
are needed. The owners of a co-operative are referred to as members, and
its capital is referred to as co-operative
capital.
A co-operative pays the capital back
when a member resigns or is removed
from the co-operative. The members
are liable for the commitments of the
co-operative only to the extent of the
capital that they have invested in the
co-operative, unless they have made
commitments on behalf of the co-operative. The members decide on issues
relating to the co-operative, and each
member generally has one vote. The
members elect the board of the co-operative. The board takes care of management of the co-operative, and it represents it. Generally, the board elects a
chief executive officer (CEO) for the cooperative. However, this is not mandatory. The CEO takes care of the day-today management of the co-operative.
The CEO can be elected when the cooperative is established in the memorandum of association.
Establishing a co-operative
In order to establish a co-operative, a
memorandum of association is created
to which the regulations of the co-operative are appended. The regulations
must specify, as a minimum, the name
of the co-operative, its domicile, the
line of business, the accounting period
and the amount of each contribution,
the term of payment and the method of
payment. The co-operative must also
be registered with the Finnish Trade
Register. This is done using a Y1 form
and its appendix. Notification of the
co-operative must be made within six
months of the memorandum of association being signed, otherwise establishment of the co-operative becomes void.
There is a charge for registration, and
in the year 2011, this was EUR 350.
Who is a co-operative suitable for?
Often, a co-operative is suitable for expert entrepreneurs such as those providing cultural and well-being services,
or translation and interpreting services.
For example, each member of the cooperative can carry out his/her own job,
and the co-operative just takes care of
billing, bookkeeping and marketing.
Branch of a foreign
enterprise
business or professional activities on a
constant basis in a permanent office in
Finland. The name of the branch must
include the name of the foreign trader in
the registered form together with an addition that indicates it is a branch. The
addition can be, for example, “sivuliike
Suomessa” (branch in Finland), “filial i
Finland” or “filial”.
When a branch is established, notification of this must be sent to the Finnish Trade Register. Notification must be
given before operations commence. If
the foreign organisation or foundation
is from outside the EEA area, a licence
must be sought from the National Board
of Patents and Registration of Finland
to establish a branch in Finland.
A branch is a part of a foreign organisation or foundation that engages in
27
Registration issues
Finnish Trade Register
people or places. The name must differ sufficiently from other names and
trademarks that are in the register. Using your own name or place name in
the name of the business will help ensure that it is individual. Registering the
name of the business gives the exclusive right to that name throughout the
country, i.e. no-one else may use this
name.
With the same declaration, you can
also enrol in the registers of the Finnish Central Tax Administration, comprising the register for collection of
tax at source, the register of employers and the register for those liable to
VAT. There is no charge for enrolment
in these registers.
The form of enterprise is also apparent from the name of the business. A
sole trader may use the identifier “tmi”
or “toiminimi”, but this isn’t mandatory.
Limited partnerships use the abbreviation “ky”. The identifier for a limited
company is “oy” and for a public limited company, “oyj”. The identifier for a
general partnership is “avoin yhtiö” –
the abbreviation “ay” may not be used.
The name of a branch will include the
term “sivuliike Suomessa” or “filial i Finland” as well as the name of the foreign
enterprise.
The Finnish Trade Register (www.prh.
fi/en.html > Trade Register) is the official, public register for information
about enterprises. The majority of Finnish businesses are limited companies
and sole traders. Generally, all businesses must enrol in the Finnish Trade
Register. There is a charge for registration of the business.
Registration fees for
businesses in 2011
Sole trader
EUR 75
General partnership and limited
partnership
EUR 180
Limited company, co-operative, branch,
EEIG
EUR 350
Business ID
The business and organisation ID is
a unique ID that the authorities give
to businesses and organisations. The
business ID is provided once the foundation of a business is recorded in the
Finnish Business Information System
(www.ytj.fi). A business ID consists of
seven numerical digits, a hyphen and
a check digit, for example 1234567-8.
The business ID is required on invoices and contracts, and when using the
Finnish Trade Register or dealing with
the Finnish Central Tax Administration,
among other things.
Name of the enterprise
It is essential to choose a good name
for the business. The name must be
sufficiently individual. The name can
not just contain general words or a
service description and the names of
28
The name is registered either in the
Finnish language or the Swedish language. The name may include, in
addition to the Finnish- or Swedishlanguage identifier for the form of enterprise, identifiers in other languages, for
example, Ab Finntex Oy or Oy Finntex
Ltd. The name may also include parallel
business names in different languages,
i.e. translations of the Finnish- or Swedish-language name. The possible parallel business names for a limited company must be included in the articles
of association. The parallel business
names for a general partnership or a
limited partnership must be included in
the articles of association, and those
for a co-operative must be included in
its regulations.
Auxiliary business name
An entrepreneur may carry out part
of his/her operations using an auxiliary business name. This is conven-
ient when the same enterprise has operations in completely different fields.
For example, the owner of “Jokinen’s
florist’s” may run cleaning operations
under the name “Näppärä”. There is
a charge for registration of an auxiliary business name, and this name can
only be used for those activities that it
is registered for. Several auxiliary business names may be used. However,
an auxiliary business name can not be
used for the operations of the whole
business. Thus, by using auxiliary business names, the same enterprise may
comprise different operations with different business names. This can help
with operations and marketing. However, there will only be one set of accounts and one business ID for all of
the enterprise’s operations.
Line of business
The line of business of an enterprise is
always declared when the enterprise is
registered with the Finnish Trade Register and the Finnish Central Tax Administration. It is also possible to register
so-called “general commercial activities” with the Finnish Trade Register,
meaning that the business may engage
in all kinds of lawful business activities
that are accordant with good practice.
However, it is advisable to state the line
of business explicitly so that the nature
of the business’s operations is clear.
It is also possible to include the following type of declaration in the Finnish
Trade Register: “yleistoimiala” (general
commercial activities), including repair,
servicing and trade of motor vehicles,
amongst other things. In this case, the
customers will understand more easily
which areas the business operates in.
However, you must notify the Finnish Central Tax Administration of your
main line of business. The enterprise
may have only main line of business,
and this must clearly describe what field
the enterprise operates in along with
the form of the operations: for exam-
Becoming an
Entrepreneur in Finland
ple, repair, servicing and trade of motor vehicles. It is not possible to record
a main line of business in the register
that is too general.
Register for collection
of tax at source
Starting up business operations generally requires that the business enrols
in the register for collection of tax at
source maintained by the Finnish Central Tax Administration. You can enrol in the register for collection of tax
at source using the same form that is
used for notifying the Finnish Trade
Register of your new business. When
a business is in the register for collection of tax at source, the business commissioning work does not need to withhold tax from the remuneration paid by
it. A business that is in the register for
collection of tax at source takes care
of its taxes itself by paying tax levied
in advance.
Advance tax bill
A new business will pay advance tax on
the basis of how large the enterprise’s
estimate of its taxable income for the
first accounting period is. The business gives this estimate in its declaration of foundation. The Finnish Central
Tax Administration determines the advance tax on the basis of the business’s
own estimate and sends the business
an advance tax bill and bank-transfer
forms for payment of the tax.
Register of Employers
The Register of Employers is maintained by the Finnish Central Tax Administration (www.vero.fi).
The business must enrol in the Register
of Employers, if it has:
1) at least two permanent employees
during the calendar year, or
2) at least six temporary employees
at the same time.
If payment of salaries and wages is
temporary, or these are paid to only one
employee, the business does not need
to enrol in the Register of Employers.
Register of those
subject to VAT
Businesses that are subject to VAT enrol in the Finnish Central Tax Administration’s register via their declaration
of foundation. At the same time, such
businesses also state the date of commencement of their operations that are
subject to VAT. It is possible to enrol in
the VAT register even when the business is not liable to charge VAT based
on the law, for example if sales for the
accounting period are less than EUR
8,500. A business that is in the register may deduct the VAT included in
the business’s purchases from the VAT
payable on sales.
A foreign business is subject to VAT in
Finland if it has a fixed place of business in Finland. A foreign business is
recorded in the register of businesses subject to VAT in the same way as
Finnish businesses are. A foreign business may also apply to be subject to
VAT in Finland. In some special situations, a foreign business is always liable to charge VAT.
If, in the opinion of the entrepreneur,
the business is not subject to VAT, (s)
he should mark a cross on the declaration of foundation against “Ei katso olevansa arvonlisäverovelvollinen” (I do
not believe I am liable to charge VAT)
and (s)he should explain the reasons
for this.
29
Bookkeeping and financial statements
for the enterprise
According to the Finnish Accounting
Act, all businesses have a legal obligation to keep accounts. It is worthwhile
for entrepreneurs to outsource their
bookkeeping, i.e. to pay for a service
from a firm of accountants, so that they
can concentrate on earning their income.
Day-to-day bookkeeping
Day-to-day bookkeeping, which is
dealt with during the accounting period, is based on corroborative documents. These include sales invoices,
purchase invoices, payslips and bank
statements. Entrepreneur professionals may use single-entry bookkeeping
if they so wish. This is essentially the
recording of just the business’s income
and expenditure. All other forms of enterprise must use double-entry bookkeeping. This means that every business transaction is recorded in two
accounts, i.e. in a debit account and a
credit account.
Nowadays, financial-management systems tend to take the form of computer
systems, and paper is used less and
less. Invoices can be sent and received
electronically, and payments and statements are also delivered in electronic
form.
Accounting period
A business’s accounting period is normally 12 months. The first accounting
period may be longer than 12 months
but can never exceed 18 months. Also,
the first accounting period may be
shorter than 12 months. Also, a business’s accounting period does not
have to be a calendar year (for example, 1 April – 31 March). However, the
accounting period for an entrepreneur
professional must always be a calendar year (1 January – 31 December),
if the entrepreneur uses single-entry
30
It is worthwhile for
entrepreneurs to
outsource their bookkeeping, i.e. to pay for
a service from a firm
of accountants, so
that they can concentrate on earning their
income.
bookkeeping. Entrepreneur professionals generally operate small-scale businesses that are based on the entrepreneur’s personal professional skills and
that do not require large investments to
set them up.
Firms of accountants
It is always worth entrepreneurs using
a firm of accountants or an accountant
to deal with the bookkeeping, so that
they can use their own time for earning
income. Generally, firms of accountants
are experts in statutory bookkeeping,
VAT and business taxation. A firm of accountants may also, when necessary,
take care of payroll computation and
payroll accounting. Expertise in cashflow planning is also important for small
businesses. In choosing a firm of accountants, it is worth paying attention to
all of these matters. Further information
is available from: www.taloushallintoliitto.fi > Tilitoimiston asiakas (Customers of firms of accountants) > Ostajan opas (Buyer’s guide).
Financial statements
When the accounting period has ended, the financial statements and annual report are created. The financial
statements for a small business comprise a profit and loss account, a balance sheet and the notes to the financial statements. All these documents
should comply with the specific formal
requirements of the Finnish Accounting
Act, the Finnish Accounting Decree and
Community Law. The board of a company or co-operative, the active partners of a partnership or a sole trader
accept the financial statements and
annual report with their signatures. If
the business has an auditor, (s)he will
check the bookkeeping and the governance of the company, and (s)he will
write an auditor’s report.
In a limited company, the shareholders
ratify the financial statements and annual report in the general meeting or with
Entrepreneur professional:
Entrepreneur trader:
1) if single-entry bookkeeping:
The accounting period must be
a calendar year
Double-entry bookkeeping
must be used: the accounting
period does not have to be a
calendar year.
2) if double-entry bookkeeping:
The accounting period does
not have to be a calendar year
For example: the period starts
at the beginning of March and
finishes at the end of February.
Becoming an
Entrepreneur in Finland
a written document. In a co-operative,
the members ratify the financial statements and annual report in the general
meeting or with a written document. In
a partnership, a formal meeting is not
required, as the financial statements
are signed by the active partners. The
same applies to sole traders.
Audits
The requirement to have a regular audit
applies to general partnerships, limited
partnerships, limited companies and
co-operatives. Sole traders, i.e. firms
and entrepreneur professionals do not
need to appoint an auditor.
However, according to the Finnish Audit
Act, an auditor does not need to be appointed in small businesses, if no more
than one of the following has been fulfilled in the last accounting period and
the period that immediately preceded it:
1) the total sum of the balance sheet
exceeds EUR 100,000
2) net sales or the corresponding
income figure exceeds EUR
200,000 or
3) on average, there are more than
three employees.
Thus, an audit is mandatory in those
companies and co-operatives where
the limit(s) given above are exceeded.
A provision concerning the use of an
auditor can be included in the articles
of association, regulations or memorandum of association for a new enterprise, even when the law does not require the use of an auditor. However, if
you do not wish to appoint an auditor,
there is no point in including provisions
about the use of an auditor.
If an auditor is appointed by virtue of
the law or voluntarily, an approved auditor must be appointed, i.e. a chartered
accountant (KHT or HTM) or a firm of
chartered accountants (KHT or HTM).
Further information is available from
www.tem.fi/tilintarkastus.
31
Income taxation and VAT
The business pays income tax based
on its taxable income. Income tax is
paid in advance and, when necessary,
in arrears and as supplementary payments. The form of the enterprises impacts on the taxation of income.
VAT is generally paid monthly on the
basis of sales and purchases. The form
of the enterprise is not relevant when
considering VAT.
In the entrepreneur’s income tax calculation, there may be both earned income and capital income.
Capital income means income from
sales of assets, rental income or returns on capital. Such income includes,
for example, interest income and rental income, capital gains and dividends
received from public listed companies.
Also, part of the business income of
entrepreneur professionals and entrepreneur traders, the income share of
partners in general partnerships and
limited partnerships and the dividends
issued by a normal limited company are
regarded as capital income. It depends
on the business’s assets how big this
proportion is. The tax on capital income
is always 28 %.
Earned income includes, amongst other things, wages and salaries, pensions, benefits (for example benefitsin-kind, such as a company flat for
employees) and other payments (such
as unemployment benefit). Tax on
earned income is progressive, i.e. the
tax percentage rises as income rises. In
other words, high earners are charged
a higher percentage of tax than lower
earners. The tax deducted from earned
income comprises state tax, municipal
tax and possibly church tax. The levels
of municipal tax and church tax depend
on the municipality and the parish. In
addition, there are two further forms of
32
taxation. These are based on the individual’s earned income according to the
Self-Employed Persons’ Pensions Act:
there is a nursing charge of 1.19 % of
earned income, and there is a daily allowance charge of 0.92 % of earned
income. (figures for 2011)
Taxation of income in different forms of enterprise
Sole trader (firm)
The income earned from a sole trader’s business is taxed as his/her own
income. Part of the business’s income
is capital income, and part is earned
income. The business’s income is divided into earned income and capital
income on the basis of the net assets of
the business (net assets = assets of the
business – liabilities of the business).
Capital income is 20 % of net assets
for the previous year, and the rest is
earned income. Alternatively, the entrepreneur can decide that capital income
will only be 10 % of net assets or that
all of the business’s income is earned
income. In the year of foundation of the
business, the capital-income share is
calculated according to net assets on
the last day of the first accounting period.
If spouses work in the business together, the business income is divided between them. The earned-income share
of the business’s income is divided
between the spouses in proportion to
their work contribution, and the capitalincome share according to their share
of net assets.
Tax on the capital-income share is calculated at the rate of 28 %. The earnedincome share is added to other earned
income of the entrepreneur, and the entrepreneur pays tax on the total earned
income figure according to the progressive tax scale.
General partnership and l­imited
partnership
A general partnership and a limited partnership are not regarded as separate
taxpayers for the taxation of income.
They do submit their own tax return,
according to which the taxable income
of the partnership (the income on which
tax must be paid) is calculated. This income is split amongst the partners, and
the partners pay tax on this. However,
the partners are not taxed on the personal drawings made by them or the
share of profit belonging to them according to the accounts.
Part of each partner’s income share is
capital income and part is earned income. The earned income is divided
into the earned income and capital income on the basis of the net assets of
the business in the previous year and
the asset share belonging to each partner.
Tax is charged at the rate of 28 % on
capital income. The earned-income
share is added to the partner’s other
earned income, and the partner pays
tax on the total earned income figure according to the progressive tax
scale.
A sleeping partner in a limited partnership generally receives interest from
the partnership on the capital invested
by him/her. This kind of income is capital income for the sleeping partner.
Limited company
A limited company is regarded as an
independent taxpayer. This means that
the limited company’s income is taxed
as the company’s own income, and the
company’s income does not affect the
taxation of individual shareholders. At
the moment, a limited company pays
tax of 26 % on its income.
Becoming an
Entrepreneur in Finland
A limited company’s shareholders can
withdraw funds from the limited company either as a salary or as dividends. In
addition, the company can issue a loan
to shareholders, but the loan is regarded as capital income in the taxation of
the shareholder, if it has not been paid
back by the end of the year. Tax-free
drawings are not possible in a limited
company.
A company may distribute its profit as
dividends to its shareholders. Taxation
of dividends depends on how much in
dividends a company distributes and
what the mathematical value of its
shares is. The mathematical value of
its shares is calculated on the basis
of the company’s net assets. If a company distributes less than 9 % of the
mathematical value of its shares as dividends, the dividend is deemed as totally tax-free income for a shareholder
up to a value of EUR 90,000. For any
element exceeding EUR 90,000, 70 %
is regarded as taxable capital income
and 30 % as non-taxable income. If the
company distributes more than 9 % of
the mathematical value of the shares
as dividends, for the element exceeding 9 %, 70 % is regarded as taxable
earned income and 30 % as non-taxable income.
Register for collection ­
of tax at source
An individual or enterprise that carries
out business activities is entered in the
tax-prepayment register of the Finnish
Central Tax Administration. The individual or enterprise is admitted to the taxprepayment register if the enterprise
or the people managing the enterprise
have not demonstrated negligence in
taxation issues.
When an entrepreneur has been entered in the tax-prepayment register,
his/her employer does not need to send
the tax deducted from remuneration
Taxation on income of sole traders, example
Net assets, € 15,000
+ Net sales, € 40,000
- Costs, € 15,000
Business income to be
distributed, € 25,000
Capital income,
20 % x 15,000 = € 3,000
Tax on capital income,
28 % x € 3,000
paid. Inclusion in the tax-prepayment
register also affects the household deduction granted to the entrepreneur’s
customers. The right to a household
deduction is only given when the entrepreneur receiving remuneration for
work has been entered in the tax-prepayment register. It is possible to check
whether someone is listed in the taxprepayment register using the free YTJ
(Joint business information system)
data service (www.ytj.fi) or at an office
of the Finnish Central Tax Administration.
Entrepreneurs included in the tax-prepayment register take care of their taxes themselves usually by paying their
tax in advance on a monthly basis. Enrolment in the tax-prepayment register
requires submission of a notification of
foundation of the enterprise. This notification also includes an estimate of
the business’s net sales and taxable
income for the first accounting period.
The tax office determines the advance
taxes payable by the enterprise on the
basis of the enterprise’s own estimate,
and it sends the business an advancetax bill and account-transfer forms for
the advance taxes. If the final result
differs from the estimate, the entrepreneur can apply for an amendment to
Earned income, € 22,000
Earned-income tax % x €
22,000
the advance tax or cancellation of the
advance tax completely. If the result for
the accounting period shows that too
little tax has been prepaid, the tax can
be made up by paying a supplementary advance-tax payment. Tax prepayments and advance-tax supplementary
payments are taken into account in the
final taxation for the accounting period.
The tax office can remove an enterprise
from the tax-prepayment register if that
business does not take proper care of
its payment of taxes or it does not fulfil
its accounting obligations or other obligations relating to taxation.
Tax account
At the beginning of the year 2010, tax
accounts were introduced. All taxes
that entrepreneurs are responsible for
paying at their own initiative (indirect
taxes), except for capital-transfers tax,
are declared using a periodic tax return. Taxes paid at one’s own initiative
include VAT, tax prepayments and employers’ social security contributions,
for instance.
A periodic tax return is submitted and
indirect taxes are normally paid once
a month. However, small enterprises
33
may opt for a less intense timetable for
returns and payments, if they have always had a good record in submitting
returns and paying taxes.
If the enterprise’s net sales do not exceed EUR 50,000 in a calendar year,
VAT, tax prepayments, employer’s social security contributions and tax withheld at source can be paid and returns
submitted in quarterly instalments,
i.e. once every three months.
If net sales do not exceed EUR 25,000,
VAT can be paid and returns submitted
every calendar year, i.e. once a year.
Primary producers and artists can pay
VAT once a year regardless of their net
sales. Additional information is available from: www.vero.fi/verotiliohjeet.
VAT
VAT is a tax on consumption, which the
seller adds to the sales price of goods
or services. The intention is that the
consumer ultimately pays the VAT. In
transactions between entrepreneurs,
the entrepreneur that buys the goods
or services can deduct the VAT that the
other entrepreneur has charged him/
her. This can be done if the product is
used in a business that pays VAT.
Those liable to VAT are all businesses
that sell goods or services. The sale of
services includes, for instance, catering, consulting and transport services.
For most goods and services, VAT is 23
% as from 1 July 2010. For food supplies and animal feed, VAT is charged
at 13 %. The VAT on restaurant and
catering services is also 13 % nowadays, but for the sale of alcoholic drinks
and tobacco products it is 23 %. VAT
on books, medicine, fitness services,
showings of films, transport of passengers, accommodation services, cultural
and entertainment events, and television licences is 9 %. For hairdressing
34
Taxation of income in a limited company
Taxation of income in a limited company
Net sales - costs = profit
Salary (cost)
(scale tax %)
Corporation tax
of 26 % is
payable
Dividend
9 % of net assets
1. Tax-free up to EUR 90,000
2. For the part exceeding EUR 90,000
a) 30 % tax-free
b) 70 % taxable capital income
services and minor repair and alteration work too, the VAT rate has been
reduced to 9 %, and this rate will continue to apply until the end of 2011.
Minor repair services include repair
services for bicycles, shoes and leather goods as well as clothes and bed
linen. The entrepreneur pays the state
any VAT that (s)he has collected from
sales. Sales on goods and services are
generally subject to VAT. Those lines
of business that are not subject to VAT
are specified separately in legislation.
These include, for example, the sale of
real estate and owner-occupied flats,
healthcare and medical services, and
social welfare services. If an enterprise
only sells goods or services on which
VAT is not charged, the enterprise is
not liable for VAT.
A limited company
may decide to split
this as follows:
1. Dividend =
dividend income
2. Leave money
in the company =
boost the assets
If a dividend paid exceeds ­
9 % of net assets
a) 30 % tax-free
b) 70 % according to the earned-income tax %
If a business’s net sales in an accounting period remain below EUR 8,500, it
does not need to register itself as liable for VAT. It is worth the entrepreneur
being realistic when (s)he estimates
the level of the business’s net sales. If
the EUR 8,500 limit is exceeded, even
though the entrepreneur has estimated that net sales would be lower, (s)he
must pay VAT backdated from the start
of the accounting period. In addition,
delayed-payment fees will be charged.
The entrepreneur can also apply to be
subject to VAT even though net sales
will remain below EUR 8,500 in the accounting period.
With VAT, lower-limit relief is available
if the enterprise’s net sales for an accounting period fall below EUR 22,500.
When the enterprise’s net sales for an
Becoming an
Entrepreneur in Finland
accounting period do not exceed EUR
8,500, the enterprise gets relief on the
whole tax chargeable for the accounting
period. If net sales exceed EUR 8,500
but fall below EUR 22,500, the relief is
calculated as followss:
Monthly
Including tax
Net of tax
VAT 23%
Sales
6,150
5,000
1,150
Purchases
1,845
1,500
VAT payable
345
EUR 805
Tax - (net sales – 8,500) x tax
14,000
For example: Net sales are EUR
19,000, and the VAT that should be
paid is EUR 3,426. The relief is calculated as ((19,000 – 8,500) x 3,426) /
14,000 = EUR 2,569.50, and this is deducted from the tax. So, the relief is
EUR 856.50.
If an entrepreneur who is liable to VAT
buys goods or services from another who is liable to VAT and VAT is included in the price, (s)he may deduct
this VAT from the tax that (s)he pays to
the state. This can be done providing
these goods or services are used in the
business. In such cases, the entrepreneur must have a purchase invoice that
shows that tax is included in the price.
There are separate regulations about
VAT for imports, exports and other international business. In these cases, it
is worth clarifying matters with your tax
office or an accountant.
Further information about taxation is
available from: www.vero.fi
35
Insurance
It is important before establishing a
business to carefully determine what
kinds of insurance the business and the
entrepreneur need. It is worth the entrepreneur, together with a representative
from an insurance company, assessing
the risks relating to the new business
and how these can be reduced with the
help of insurance.
The only mandatory form of insurance
for an entrepreneur is personal pension
insurance (as specified by the Self-Employed Persons’ Pension Act), if the entrepreneur’s work-related income exceeds EUR 6,896.69 in a year (2011
figure) and the business has operated
for at least four months.
36
Optional insurance includes
the following, among others
The entrepreneur’s voluntary accident
insurance
• this also covers leisure time
• this is a deductible cost for the
business
Business-interruption insurance
• the aim is to safeguard against a
loss of income arising from interruptions to the business
Personal liability insurance
• compensates, with certain conditions, losses caused to a third
party as well as rectification of the
loss and any legal expenses
• often a customer, for example in
the construction and cleaning sectors, will require that the supplier
has personal liability insurance.
Legal-expenses insurance
• covers legal expenses that may
arise from, for example
• supply agreements, sales contracts or piecework contracts
• disagreements on the validity of
balances payable or receivable
• disputes on dismissal of staff or
wages and salaries
• rental-agreement relationships
It is also good to insure property and
business premises against theft, burglaries, fire and water damage. Ask for
quotes from various insurance companies, thoroughly familiarise yourself
with the terms of their policies and only
then make a final decision on what insurance you will take.
Becoming an
Entrepreneur in Finland
Entrepreneur’s pension insurance - self
employed persons’ pensions act (yel)
The only form of insurance that entrepreneurs must take is entrepreneurs’
pension insurance (i.e. YEL insurance). This is available from pension
insurance companies. On the basis of
the Self-Employed Persons’ Pensions
Act, an old-age pension is paid to entrepreneurs, as well as sickness benefit from the Social Insurance Institution of Finland (Kela, www.kela.fi), and
maternity, special maternity and paternity allowances and maternity benefit
(based on the Sickness Insurance Act)
or rehabilitation allowance. The size of
the YEL payment is based on the entrepreneur’s work income. The YEL
work income must match that salary
that should be paid to professional individuals for similar work. Also, the entrepreneur’s unemployment-fund membership fee and any earnings-linked
daily allowance are determined on the
basis of YEL work income. YEL insurance also affects dependents’ pension
security, which is paid to relatives after
the death of an entrepreneur. YEL insurance must be taken from a pension
insurance company once four months
have elapsed from commencement of
the business’s operations.
Just owning a business does not entitle
you to a self-employed person’s pension. Instead, the pension insurance
requires that you actually work as an
entrepreneur. Also, the status of ownership and the different forms of enterprise impact on whether the entrepreneur must take YEL insurance or
employees’ pension insurance.
• 18-67 year olds falling within
the scope of YEL insurance
who work as entrepreneurs
in Finland
• Operations last at least four
successive months
• The estimated income from
work is at least EUR 6,896.69
a year (2011 figure)
• The payment is 21.6 % of
work income, and 22.9 % for
those who are over 53 years
of age
• The new entrepreneur gets a
25 % discount on payments
for the first 48 months
• This is paid 1–2, 6 or 12
times a year.
YEL Entrepreneur’s pension insurance
Sole trader /
firm
(Tmi)
General
partnership
Active partner
Working in a managerial position, owns more
than 30 % of the shares or number of votes
alone or more than 50 % with his/her family
Limited
partnership
(Ky)
Limited company
(Oy)
Sleeping partner
Working in a managerial position and owns
30 % or less of the shares alone or owns
50 % or less together with his/her
TYEL Employee’s pension insurance
37
Entrepreneur’s unemployment benefit
The entrepreneur may voluntarily become a member of the entrepreneurs’
unemployment fund, if (s)he would like
earnings-linked unemployment benefit. In such cases, it is possible for the
entrepreneur to apply for an earningslinked daily allowance, if the business’s
operations end and (s)he remains unemployed. The entrepreneur may become a member of the entrepreneurs’
unemployment fund, if (s)he has at
least EUR 8,520 in work income a year
(2011 figure). However, the insurance
level of the entrepreneurs’ fund can not
be higher than the YEL work income.
If the entrepreneur is a member of the
employees’ fund, it is worth joining the
entrepreneurs’ unemployment fund as
soon as (s)he starts the enterprise’s
operations. It is possible to apply for a
daily allowance from the entrepreneurs’
38
unemployment fund if the individual has
operated as an entrepreneur for 18
months during the last four years and
(s)he has been a paying member of the
unemployment fund at the same time. If
the entrepreneur transfers from an employees’ fund to an entrepreneurs’ unemployment fund, (s)he can get a daily
allowance after 12 months as an entrepreneur.
The business operations are regarded
as ended, when the enterprise is declared bankrupt or is sold. The entrepreneur also has the right to a daily allowance if the business’s operations
have been demonstrably suspended for
at least successive four months. The
enterprise is regarded as closed when
the entrepreneur has terminated his/
her pension insurance, submitted notice of termination to the Finnish Cen-
tral Tax Administration and the Finnish
Trade Register, vacated his/her business premises and sold his/her business assets or submitted details of its
value to the unemployment fund.
A decision on whether the entrepreneur
is regarded as unemployed or the business as suspended is always made by
the Employment and Economic Development Office for the entrepreneur’s
home municipality, where an entrepreneur who remains unemployed must
register as an unemployed job seeker.
Further information on unemployment
benefit is available from:
www.mol.fi
www.ayt.fi
www.syt.fi
Becoming an
Entrepreneur in Finland
Employment of employees
When a business starts to pay wages
and salaries on a regular basis, it must
enrol with the Finnish Central Tax Administration’s Register of Employers using the declaration of foundation form
or the notification of change form, if
the enterprise already has a business
ID. When the business has been listed in the register, the tax office sends
the business tax-account guidelines for
the payment of tax deducted at source
and social-security contributions and
the submission of returns for these.
An employer that employs staff permanently (as a contractual employer)
organises pension security for its employees with a separate insurance policy. Pension insurance must be paid
during the month following the payment
of salaries and wages. The enterprise
is regarded as a temporary employer
if it pays salaries and wages of less
than EUR 7,518 (2011 figure) during
a six-month period and the enterprise
does not have a permanent employee.
A temporary employer does not need
to arrange a separate insurance agreement. In such cases, (s)he pays insurance premiums by the 20th day of the
month following payment of salaries
and wages to that pensions insurance
company that (s)he has selected. Also,
a casual employer pays the tax withheld at source from its employees and
the social security contributions at its
own initiative to the Finnish Central Tax
Administration via a tax-account process.
A more flexible way for a business
to operate than employing its own staff
is to pay for the necessary resources
from another business (a recruitment
agency). The agency pays the employee’s salary and looks after all its other
duties as an employer, but it is the responsibility of the recruiter to supervise
and guide the employee. The recruitment agency must comply with the collective labour agreement binding the recruiter to its temporary employees. The
recruiter also monitors the work done
by the employee.
Indirect staff costs (in 2011)
• For salaried employees, employees’ pension insurance (as specified by the Finnish Employees’
Pensions Act) must be taken, if a
salary of EUR 52.49 a month or
more is paid to them. The pension
contribution paid to the pension insurance company is 22.5 % of the
employee’s salary. For temporary
employers, the pension contribution is 23.0 % of the salary. The
employee’s share of the pension
contribution that the employer withholds from the salary paid is 4.7 %
for employees under 53 years of
age and 6.0 % for employees of 53
or older.
• The social security contribution is
2.12 % of the salary.
• The unemployment insurance contribution is 0.80 % of the salary
when the employer pays no more
than EUR 1,846,500 in wages and
salaries in a year. The insurance
contribution is 3.20 % of that part
of wages and salaries that exceeds this. The employee’s unemployment-insurance contribution is
0.60 %.
• The accident insurance premium
is 0.3–8.0 % of the salary depending on the line of business, and the
average figure is 1 %.
• The group life assurance premium
is on average 0.071 % of the salary.
It is worth arranging for a firm of accountants to take care of payroll computation and submission of employer
returns.
If the periodic tax return is submitted on paper, the return must arrive at
the Finnish Central Tax Atdministration
by the 7th day of the month. A business
that is liable to VAT and works on a calendar-year basis must submit a periodic tax return and must pay the tax no
later than the 28th day of February following the calendar year in question.
Further details on recruitment of employees are
available from:
Entrepreneurs in Finland
(www.yrittajat.fi)
Occupational safety responsibilities –
Centres for Economic Development,
Transport and the Environment
(www.tyosuojelu.fi)
Employment and Economic Development Offices, www.mol.fi > Työsuhdeasiat (Employment matters)
Employer unions
(www.ek.fi, www.yrittajat.fi)
Insurance companies
(www.tyoelake.fi)
Entrepreneur’s key dates
12th day
Finnish Central Tax
Administration
- pay VAT, tax
deducted at source
and social security
contributions and
submit
returns for these
20th day
Insurance company
- pay TyEL and YEL
contributions
(employees’ and
self-employed
pension contributions) and other
insurance premiums
23rd day
Finnish Central Tax
Administration
- pay the business’s
tax prepayments
39
Business culture in Finland
To succeed in business it is important
to know Finnish business culture, attitudes and customs. Then it is possible
to serve customers better and also understand what your customers expect.
The Finns like to use their time effectively. They happily plan timetables
and stick to the times agreed. In written Finnish, the 24-hour clock is used.
It is still good to check agreed meeting
times by e-mail for instance.
The working day generally starts in the
morning around 8 a.m. and ends in the
afternoon around 4 p.m.. Lunchtime is
around 11 a.m. – 1 p.m..
All people are valued as equal regardless of age, gender, profession and religion. Women are equally involved both
40
in corporate life and as public servants.
Addressing people using the familiar
form of “you” in Finnish is very common. It is good to remember to be polite when talking to people in meetings,
phone conversations and e-mails.
It is good to thoroughly prepare yourself
for meetings and to arrive on time. On
arriving at a meeting, a firm handshake
while looking at your colleague’s eyes
creates a trustworthy first impression.
Finns drink a lot of coffee, and it is also
often provided in business meetings.
At the end of a meeting, people shake
hands.
In Finland, businesses encounter little bureaucracy. Decisions are made
quickly, and businesses act efficiently
after careful planning and preparation.
The Finns like to use
their time effectively.
They happily plan
timetables and stick
to the times agreed.
Finland is among the world’s least corrupt countries, so gifts, of either goods
or money, must never be offered to officials or business partners. However, a
small reminder of a good acquaintance
is allowed, such as giving a card or a
small gift of minor value, for example
at Christmas.
Becoming an
Entrepreneur in Finland
Environmental responsibility
of the business
When you decide on the line of business for your enterprise and you begin
operations, it is good to take account
of environmental matters. All operations
have an impact on the environment, but
by complying with legislation, regulations and guidelines, you minimise the
harm caused to the environment. In
addition, monitoring of electricity consumption, for example, and sorting of
waste also save business costs.
Environmentally responsible operations
are also a marketing tool and a competitive factor for small businesses. Nowadays, consumers are very informed,
and they respect enterprises that take
account of environmental matters in
their operations. Everyday purchasing
decisions may be made in accordance
with these values.
Take care of the environment
1) Establish what environmental
legislation there is concerning your
business.
As an EU country, Finland has a lot of
environmental legislation and regulations that concern businesses and various industries. For example, does it impact on your business’s operations that
a manufacturer and importer of products
is responsible for organising and paying
for the waste disposal of products when
products are taken out of use? Further
information is available from the environmental authority for your own municipality and from www.ymparisto.fi >
Yritykset ja yhteisöt (Businesses and
organisations) and www.yrityssuomi.
fi/ymparisto.
2) Identify harmful environmental
impacts. Establish how they can be
reduced.
A business does not necessarily have
to make large investments. Instead, it
can just implement changes to existing
practices to create the desired impact.
For example, electrical appliances consume a lot of energy while on standby:
a computer’s electricity consumption
may reduce by as much as 60 % when
energy-saving measures are introduced (source: Motiva). Monitor energy
consumption in your business systematically, so that you notice any areas of
unnecessary consumption.
3) Familiarise yourself with wastedisposal regulations in your business’s area.
The sorting and reduction of waste generated by business operations is really important. Waste that has been well
sorted and delivered to the waste collection point can be used again. Generally speaking, the same sorting regulations apply to businesses operating
in a residential building as they do to
residents. If a business operates in its
own business premises or property, it
will create an independent waste-disposal agreement.
The best solution for the environment
is the reduction of waste; mixed waste
that has not been sorted is money that
is pointlessly carried to a waste tip.
More guidance on recycling is available from: www.kierratys.info.
4) Respect the environment if you
use dangerous materials.
Chemicals and other dangerous materials must be used and stored in accordance with regulations. Hazardous
waste must always be delivered to a
separate collection point (www.ongelmajate.fi). Additional information about
chemicals is available from: www.valvira.fi.
5) Think about the environment
when you make purchases. Use
eco-label products that have been produced nearby, and try to use Fairtrade
or organic products. Buy products that
are in economy-size packs or that are
recycled. You can also buy green (environmentally friendly) electricity. New
fridges, freezers and dishwashers are
more energy efficient than old ones.
Savings can also arise by using less
electricity, water or even detergent. Familiarise yourself with the eco-friendly labels such as the Swan mark, the
Flower mark, the Energy mark, as well
as “Luomu” (Organic), the EU organic
mark, Demeter, Norppaenergia and the
“Reilun kauppa” (Fairtrade) marks.
41
Checklist for the new entrepreneur
Your personal qualities and
professional skills
Do you have sufficient professional
skills and expert knowledge to operate
as an entrepreneur? Are you persistent and can you cope with stress? How
does your family feel towards starting
up a new business?
Business idea
Plan your business idea precisely and
get help from experts. Also establish
whether you need a special licence to
start up a business in the field intended,
i.e. whether such operations would be
subject to licence.
Business plan
Adapt your business idea into a written
business plan. You will need this when
you are arranging finance for your business, such as bank loans, and when
you applying for business start-up funds
or other public support.
Sales and Marketing
Is the market big enough for your products and where is it? What is the competitive environment in the industry, and
who are your competitors? Will your
business idea bring something new and
unique, something that will help you to
defeat the competitors? What are the
best ways to reach your potential customers?
Funding
How much money do you need to start
up the business? There are many alternatives for arranging funding, such
as banks, the special finance company
Finnvera and external investors. Remember that external investors must
be certain of the viability of your business idea before they will finance its
operations. Discuss the options with
experts.
42
Adapt your business
idea into a written
business plan. You will
need this when you
are arranging finance
for your business,
such as bank loans,
and applying for business start-up funds or
other public support.
quires expert knowledge. Accounting
firms charge you for their services, but
then you will have more time to concentrate on the essential things, i.e. running your business.
Binding agreements
What agreements are needed, and
which of these are essential? Before
you sign an agreement, establish precisely what you are committing yourself
to and what will ensue from it. Always
prepare a written contract on matters
that concern your business!
Insurance and assessing
risks
Profitability
How much invoiced sales will there be
in a certain period, and is it possible for
you to achieve sufficient sales volume?
What is the sales margin for your products? Who are your customers and how
many are there? Determine your breakeven point where your income and your
costs are equal.
The right form of enterprise
There is always risk attached to starting a new business. Are you prepared
to expose your personal assets to this
risk? Is the intention to expand the business’s operations? Will there be other
associates in the enterprise, and what
are your relationships with each other?
Establish what your responsibilities and
liabilities are in the various forms of enterprise. Taxation is just one and often
the least relevant factor affecting the
choice of form of enterprise.
Accounting
All businesses are legally obliged to
keep accounting records. The law lays
down requirements for bookkeeping in
a business, and taking care of this re-
What risks are there in your business?
What forms of insurance are on offer?
Do your customers require some kind
of insurance in the business? In addition to statutory insurance, it is worth
you establishing the risks in your own
line of business and considering carefully what voluntary forms of insurance
your business and you yourself need.
For example, personal accident insurance is not statutory, i.e. mandatory, for
the entrepreneur, but it is definitely recommended. Examine the options and
ask the different insurance companies
for quotes.
Entrepreneur’s support
network
It is not good for the entrepreneur to
be alone. Do you have entrepreneurs
in your circle of friends who are familiar with the problems associated with
running a business? Do you know
any experts in this line of business?
Are there any entrepreneur associations or organisations in this field?
(www.yrittajat.fi)
Becoming an
Entrepreneur in Finland
10 Steps to success
10) Look after your own well-being. As an entrepreneur, you can arrange occupational healthcare
for yourself. The Social Insurance Institution of
Finland (Kela) will reimburse the entrepreneur for
any necessary and reasonable costs arising from
occupational healthcare.
9) Continually develop your business operations.
­Eliminate products that it is not worth selling. ­
Try to reduce your costs and increase your visibility.
8) Pay special attention to
your best customers.
7) Pay attention to your commitments as prescribed by the
law. Pay taxes and official payments by the due date, and
submit returns to authorities on time.
6) Always do your work as agreed
with the customer, or do it even better.
5) Marketing alone is not enough: you must also know
how to sell your products. Take the initiative and try to
address your customers’ changing needs.
4) A good reputation is important for the
business. Pay attention to its image.
3) The business can only work when supported by
products for which there is a big enough market.
2) You must study entrepreneurship. The Employment and Economic Development Offices (TE offices) and the Centres for Economic Development,
Transport and the Environment (ELY centres), for example, organise courses
for entrepreneurs. Also you can get help from business advisory experts.
1) You must be familiar with the line of business in which
you intend to establish an enterprise. Remember to keep
abreast of changes happening in your industry.
43
Business dictionary
SUBCONTRACTING is work procured from an independent
manufacturer or supplier outside the business.
PROFESSIONAL This is an entrepreneur who operates in
his/her profession without a fixed workplace and without external manpower. The biggest difference from a trader is the
right to use single-entry bookkeeping. Examples of people
who might operate as a professional are a masseur/masseuse, a seamstress or a carpenter (NB: See definition of
trader).
GAINFUL EMPLOYMENT Work via which financial income
or income with a monetary value is sought.
PROPERTY GIVEN AS A CAPITAL CONTRIBUTION means
assets put into a business as a non-monetary investment.
Property given as a capital contribution may only be assets
that have a financial value to the enterprise. A commitment to
perform work for the enterprise can not be regarded as property given as a capital contribution. The subscription price of
shares can be paid as property given as a capital contribution
when a limited company is established. Valuable work tools
and a car to be used in the business, for example, can also
be property given as a capital contribution.
VALUE ADDED TAX (VAT) is a tax on consumption which
the consumer pays to a business as part of the price for a
product or service. The VAT is paid by the business to the
Finnish Central Tax Administration. The entrepreneur adds
the VAT to the sales price of the product or service. The general rate of tax (tax percentage) is 23 % in Finland (as from
1 July 2010). Businesses can deduct the VAT on products or
services bought by them in their own accounting. Only businesses listed in the register of those liable to VAT can make
the deduction mentioned above.
BUSINESS ANGEL This is an individual who invests his/her
own money in growth enterprises. A business angel may, in
addition to making capital investments, act, for instance, as
a member of the board of directors or as a business mentor or help in finding contacts and creating collaborative relationships.
GROSS PRICE The total price without any discounts and
including tax.
BUDGET This is an operational plan that the business aims
to fulfil during the period in question. In this, the profit and cost
targets are presented numerically, in euros, for instance.
44
BUSINESS-TO-BUSINESS means between businesses. For
example, a marketing campaign may be just directed at businesses, i.e. business-to-business.
DEBIT In bookkeeping, transactions are recorded in different
accounts. Charges are shown on the left (debit) and income
on the right (credit).
PRODUCT LIFE-CYCLE A business’s products have a life
cycle which begins with development work and ends when
sales of the product fall and keeping it as part of the range
of products becomes unprofitable.
ENTREPRENEURS are divided into professionals and traders.
BUSINESS ACTIVITY This is a way that someone earns
money to live off. Businesses include, for example, transport,
hotel and bookkeeping services and catering activities.
PREPAYMENT OF TAX can happen when tax is withheld
from an employee in accordance with the personal withholding rate shown on the tax card, or it may be an advance payment made on receipt of an advance-tax bill.
TAX DEDUCTED AT SOURCE is a deduction of tax made
from a salary or work remuneration.
DUE DATE is, for example, the last date of payment on an
invoice.
EEA AREA This includes Iceland, Liechtenstein and Norway,
plus the member states of the European Union. EEA means
European Economic Area.
EUROPEAN UNION MEMBER STATES (in 2011): The Netherlands, Belgium, Bulgaria, Spain, Ireland, Great Britain (the
United Kingdom of Great Britain and Northern Ireland, and
Gibraltar), Italy, Austria, Greece, Cyprus, Latvia, Lithuania,
Luxembourg, Malta, Portugal, Poland, France, Romania,
Sweden, Germany, Slovakia, Slovenia, Finland, Denmark,
the Czech Republic, Hungary and Estonia.
BENEFIT This is generally money to which an individual has
a right on the basis of legislation, for example. Benefits include pension benefits, amongst other things.
PRICE Compensation payable in money for goods themselves, for use of them or for a service.
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Entrepreneur in Finland
GOODS Bread, milk and other products that are used directly
are consumer non-durables. Consumer durables include, for
example, washing machines and televisions whose operating
life is long. With the help of capital goods, these consumer
goods are produced, or new capital goods. Capital goods include, for example, raw materials, machines and fuel.
INCORPOREAL RIGHTS protect immaterial rights, such as
technology, design, trademarks and other characteristics. An
incorporeal right is an exclusive right, i.e. only the holder of
the right or someone licensed by him/her may use, for instance, a patented invention or a utility model in commercial
operations. Incorporeal rights can be generally divided into
copyrights (written or artistic works) and industrial property
rights (for example, patent rights, utility models, design rights,
trademarks and rights to use a business name).
INNOVATIVE means new, novel or fresh.
INVESTMENT Long-term expenditure that is expected to
generate income over a period of more than one accounting
period. An intangible investment may be in training, research
or environmental protection. Tangible investments may be in
machines and equipment, for example.
PUBLIC SECTOR Municipal and state bodies that are responsible for tasks relating to management of the country as
well as teaching, national defence and healthcare, amongst
other things.
RETAILER This is an importer of goods or a business that
handles retail sales of products of industrial enterprises.
DOUBLE-ENTRY BOOKKEEPING See Bookkeeping.
PROFITABILITY A business’s operations are profitable when
the difference between the business’s income and expenditure is positive, i.e. money is left for the business (profit).
CAPACITY means ability to perform or produce. For example, how many goods a business is able to produce in a certain time period.
CASH-FLOW is money that comes into the enterprise’s
funds from products or services sold and also money that
flows out.
BALANCE This refers to the financial resources available in
an account. Sales margin refers to the difference between
sales revenue and direct variable product costs.
FIXED COSTS are the costs of a business that are not dependent on the level of production over a short time period
and instead remain constant. Typically, fixed costs include,
amongst other things, rental of premises, wages and salaries,
bookkeeping and costs arising from the use of machines.
COMPETITION In its marketing, a business can use various means by which it differentiates itself from other similar
enterprises. These may be, for instance, location, products,
quality, price and availability. The opposite of competition is
a monopoly where only one enterprise engages in a specific
activity and thus it is able to set prices for its products at the
level it wishes because there is no competition. Economic
competition is regulated by competition legislation. See also
Direct and indirect competition.
BOOKKEEPING
- DOUBLE-ENTRY BOOKKEEPING means that every business transaction is recorded in two accounts, i.e. a debit
(charges) and a credit account (income). The account entries in double-entry bookkeeping explain on one hand the
reason for the movement of money and on the other hand
the account that is being used. The financial statements are
prepared on the basis of double-entry bookkeeping, using
invoice dates and the date of receipt of services (the accruals basis). The financial statements comprise the profit and
loss account for the financial period and the balance sheet,
along with notes to the accounts and an analysis of the balance sheet. All forms of enterprise other than entrepreneur
professionals must use double-entry bookkeeping.
- SINGLE-ENTRY BOOKKEEPING In single-entry bookkeeping, expenditure, income, interest, taxes and personal use of goods and services are recorded on the basis of
movement of cash (the cash-payment basis). This describes
the business’s income and expenditure. In single-entry bookkeeping, the financial statements include a profit and loss
account, but a proper balance sheet is not required. An entrepreneur professional may use single-entry bookkeeping
if (s)he wishes.
BANKRUPTCY is where the business’s operations end and
all distrainable assets are converted into cash to pay debts
that have arisen from the business’s operations. Bankruptcy proceedings may be initiated by the debtor itself or the
creditor.
INTEREST is income, presented as a percentage, that is
charged for use of money given as a loan. As a borrower
45
and payer, it is worth choosing as low an interest rate as
possible, while as a depositor, it is worth searching for as
high an income as possible for your money. A fixed interest
rate stays the same for the whole loan period, but a variable
interest rate is linked to the reference rate of interest so that
it is reviewed at specific time intervals. The reference rate of
interest may be, for example, the Euribor rate. Euribor is a
reference rate of interest that is published daily and that the
banks use when they offer unsecured loans to other banks
on the euro money market. In practice, Euribor is the interest
rate used when a bank receives loans from other banks, and
the bank then lends these funds to others using an interest
rate that is higher than Euribor (Euribor + margin).
CREDIT In bookkeeping, financial transactions are entered
in accounts for whose right side the term “credit” is used and
for whose left side “debit” is used.
BREAK-EVEN POINT means the theoretical level of net
sales where the business has a zero result, i.e. it makes no
profit and no loss.
COST An expense or part of an expense allocated to a certain accounting period.
WORKING CAPITAL Business operations require working
capital. This is needed to pay fixed costs, such as leases and
wages & salaries.
THE FORCE OF LAW means that some decision – a verdict
of a court or some other resolution of an authority – will become final and normally it is not possible to appeal against
this.
STATUTORY There is legislation that relates to specific matters and explains how you should act. For example, there are
forms of voluntary insurance where the individual can decide
for him/herself whether he/she takes out a policy, but statutory insurance is compulsory for everyone.
LEASING FINANCE refers to long-term rental of fixed assets, i.e. a machine or appliance that is acquired is not transferred into the user’s assets. Instead the user pays for its
use, and then it is returned to its owner. With leasing finance,
you are able to use a machine or appliance without committing a lot of money to it at the time of acquisition, i.e. it is
cheaper than buying it.
BUSINESS IDEA A business’s operations are based on a
business idea, which is a description of the benefit of a prod46
uct or service, its marketing and the line of business, along
with how the idea will be commercialised.
LOGO This is the registered or established symbol for a business, via which customers distinguish the enterprise from its
competitors.
BUSINESS OPERATING MODEL This shows what happens
in a business, so that a product or service can be delivered.
It is a description of the different functions in the business
and how they interact.
BUSINESS PLAN This is a written plan of the implementation of the business idea in practice. It includes an assessment of the factors affecting profitability as well as estimates
of sales, investment requirements and sources of finance.
NET SALES is the amount of money (net of VAT) that the
business will earn from its operations, such as the sales of
goods and services during a given time period, for instance,
in one month or one year. Net sales is expressed without any
deduction for the variable or fixed costs caused by sales.
NET OPERATING PROFIT is an item on the profit and loss
account that is calculated by deducting variable costs, fixed
costs and depreciation and write-downs from net sales. Net
operating profit is the profit on the business’s operations before distribution of profits.
LIQUIDITY means the ability of the business to meet payments when they become due.
TRADER This is an entrepreneur who has a fixed workplace
or who employs other staff. A trader must use double-entry
bookkeeping (NB: compare with an entrepreneur professional).
TERMS OF PAYMENT establish in an agreement when and
how the sales price is paid to the vendor.
VARIABLE COSTS are material and outsourcing-service
costs that vary according to the volume of the product or
service being sold. This means that amount of money that is
needed when, for example, raw materials are bought for the
product to be sold.
TERMS OF SALE These concern the details to be arranged
for a deal, such as price, quality and time of delivery.
Becoming an
Entrepreneur in Finland
SALES MARGIN Sales margin is that quantity of money that
the vendor has left when the direct (variable) costs relating
to creating the product or service have been deducted from
the price paid by the customer. The sales margin does not
take account of the fixed costs of the business. The lower the
sales margin percentage, the higher the net sales required
by the enterprise, so that operations are profitable.
NET PRICE The price of the product, from which all discounts have been deducted, or from which no further deductions are intended.
NET PROFIT shows the operating profit for the business
after taxes. The net profit is obtained by deducting variable
costs, fixed costs and taxes from the business’s net sales.
The result may be a profit or loss.
SHARE This is a part of a limited company’s share capital.
The shareholders own a certain number of shares, i.e. a part
of the business. They have voting rights in the company according to their ownership, and they can receive a dividend
consistent with their shareholding, i.e. compensation for the
capital invested by them in the company. The articles of association of a limited company may specify what the voting
rights of the shares are or the right to a dividend.
INDIRECT PERSONNEL COSTS are statutory payments
that a business must make to the Finnish Central Tax Administration and to an insurance company in addition to the gross
salaries payable to employees. Indirect personnel costs include social security, employee pension insurance, personal
accident insurance, unemployment insurance and group life
assurance contributions.
FAMILY BUSINESS This is that type of business where
mainly family members or close relatives work in the business either as shareholders, active partners or as individuals
assisting the entrepreneur.
SME means small- or medium-sized enterprises.
DEPRECIATION AND WRITE-DOWNS The cost of acquisition of fixed assets subject to wear and tear, such as machines and appliances, is reduced in the accounts with depreciation and write-downs over that period during which the
assets give rise to an economic benefit (operating life of the
asset).
CUT-RATE PRICE means an unreasonably low price level
compared to production costs and current market prices.
GRAPEVINE is a term for unofficial information that people
pass on to each other. The grapevine may be, for example,
chitchat in the workplace or writing in an internet discussion
forum. Information that travels from mouth to mouth is not
always true, and sometimes some people may spread this
kind of information on purpose.
DAILY CONSUMER GOODS are consumer goods used on
a daily basis, such as all food products, soap and toilet paper.
CAPITAL Money or assets (property given as a capital contribution) that the entrepreneur him/herself or another investor
transfers to a business. Capital can be divided into shareholders’ equity and liabilities. In addition to equity that has
been invested in the business, shareholders’ equity comprises capital that has accumulated from operational income.
Liabilities comprise capital which an external party has invested in the business and which must be paid back.
FINANCE Starting up a new business always requires money. Finance may include the entrepreneur’s own money, operational income, loans or state subsidies.
REFERENCE This gives details of the results of one’s previous work and of former or current customers as evidence
of one’s competency.
BALANCE This is the difference between the sums of the
debit entries and the credit entries in the bookkeeping for a
business. The balance indicates the amount receivable or
payable.
STREAMLINING means reorganisation of an enterprise.
When a business is streamlined, costs are cut back, for example, by reducing the labour force and trying to increase
earnings and improving the flow of capital. Corporate restructuring is a measure sanctioned by a court, via which the
operations of a legal person that is overburdened with debts
are reorganised. Reorganisation proceedings may concern
a sole trader, a general partnership, a limited partnership, a
limited company or a co-operative.
SEGMENT This is a part of a specific entity. For example,
customers can be grouped into different segments according
to age, education and income level. Using segments, services or products and the marketing of these can be focused
on a specific customer group, and thus a competitive advantage can be gained.
47
COMMITMENT This is a binding promise. It means that the
person must do what (s)he has committed to do or what (s)
he promised to do.
START-UP MONEY is discretionary support for new full-time
entrepreneurs. The support can be applied for in Employment and Economic Development Offices. The application
must be made before commencement of the new business’s
operations.
PUBLIC RELATIONS A continuous activity via which an enterprise tries to gain the understanding and support of important groups, such as collaborative partners and customers.
This is abbreviated as PR.
DIRECT AND INDIRECT COMPETITION Direct competition means that another business competes openly with your
business and offers the same products and services. Indirect competition means that another business offers different
products and services from your business, but they can fulfil
the same needs. For example, a pizzeria will compete indirectly with a fast-food outlet selling hamburgers but directly
with another pizzeria.
GUARANTEE This means that another person (the guarantor) promises to pay a person’s debts to the creditor, if the
debtor is not able to pay his/her debts. The guarantee may
be, for example, a personal guarantee, a joint guarantee, a
blanket guarantee or a conditional guarantee.
GUARANTEE/WARRANTY In a commercial transaction, the
vendor is liable for faults and deficiencies that become apparent in a product. Generally, the vendor gives the customer
a new product in place of the faulty one or it returns to the
customer the amount paid for the product. The guarantee/
warranty period specifies how long the vendor is liable for
the product.
OFFER This is a binding proposal made to another party
(vendor or purchaser) to work out an agreement or deal, with
the proposal containing the terms of the deal (such as price
and time of delivery).
BALANCE SHEET This is a statement of account forming
part the financial statements of a business. It shows the assets and debts of the business at a certain point in time. In
the balance sheet, the assets owned by the business are
listed under the Assets heading (debit) while the shareholders’ equity and the business’s debts are listed under the Liabilities heading (credit).
48
FINANCIAL PERIOD This is an accounting period (usually
12 months) for which the business’s result (profit or loss) is
determined. In some (exceptional) circumstances, the business’s financial period may be shorter or longer than 12
months (but no more than 18 months), when operations are
commenced or terminated or the date of the financial statements is changed (Finnish Accounting Act).
FINANCIAL STATEMENTS These are statements of account that are prepared for the financial period. They show
the financial result for the business and its financial position
at the end of the accounting period. They are usually produced once a year. The financial statements are checked
by an auditor, if the business is obliged by law to have its
accounts audited or if the business chooses voluntarily to
have an audit.
LINE OF BUSINESS This indicates what kind of business
operations an enterprise engages in, for example, catering
activities or retailing of textiles.
MISSION STATEMENT This is a description of the aim of
the business’s operations, i.e. why the enterprise exists. The
business idea is an operational plan that explains how the
mission statement will be implemented in practice.
MANAGING DIRECTOR or CHIEF EXECUTIVE OFFICER
(CEO) This person manages the day-to-day administration
of an enterprise in accordance with the directions and regulations given by the board of directors. (S)he is responsible for
ensuring that the accounting is in accordance with legislation
and that the financial management is organised in a reliable
way. The managing director or CEO must provide the board
and its members with the information that is necessary for
them to take care of their duties on the board.
CUSTOMS CLEARANCE When goods are imported or exported, tax-related and administrative procedures are associated with this. Customs clearance is taken care of by the
customs authority (www.tulli.fi/en > Businesses). For customs clearance, a declaration form is completed, where the
authority is provided with information about the goods, such
as their value and quantity.
NET CASH FLOW FROM OPERATIONS This refers to the
difference between income receivable from day-to-day business activities and expenditure.
PROFIT AND LOSS ACCOUNT This is part of a business’s
financial statements. The other elements are the balance
Becoming an
Entrepreneur in Finland
sheet, the annual report and the notes to the financial statements. The profit and loss account presents the income
earned in the financial period, and the costs relating to the
financial period, in the form of a subtraction calculation. The
profit and loss account shows the result for the financial period specified (profit or loss).
EMPLOYEES’ PENSION INSURANCE is obtained from pension insurance companies. The entrepreneur must take out
such a policy when an employee’s wages and salaries exceed EUR 52.49 a month (2011 figure).
UNEMPLOYMENT BENEFIT Unemployed jobseekers can
be paid unemployment assistance, a basic daily allowance
or an unemployment-fund earnings-linked daily allowance by
the Social Insurance Institution of Finland (Kela).
UNEMPLOYMENT FUND This pays its unemployed members an earnings-linked daily allowance. It means that the
size of the daily allowance depends on the previous salary
earned. Joining an unemployment fund is voluntary. In Finland, there are separate unemployment funds for employees
and entrepreneurs.
DEGREE OF SOLVENCY The more equity an enterprise has
in relation to loan debt, the more solvent the enterprise is.
SECURITY By obtaining a security, a lender tries to ensure
that it will receive a balance owed to it. An example is a twoor three-month security deposit paid on a lease of premises.
Securities can be divided into real securities and personal
guarantees. A real security relates to an object-specific liability for debts. A specific asset is assigned to cover the debt. A
personal guarantee means that a specific person becomes
liable for the debt of another.
PROMISSORY NOTE A document issued for a loan that
shows the parties involved, the amount lent, the payment
schedule and the interest payable on the loan.
E-COMMERCE is commerce conducted via internet.
NETWORKING A network refers to collaborative partners
who bring added value to an enterprise. You can also collaborate with competitors, for example in advertising, by creating a joint newspaper advert.
PENALTY INTEREST ON LATE PAYMENTS The interest
payable after the invoice payment date, i.e. the due date.
This is an additional charge that is levied if the initial sum
has not been paid on the due date, at the latest. According
to the Finnish Interest Rate Act, the consumer must not be
charged a penalty interest rate that is higher than the general, statutory penalty interest rate. The penalty interest rate
is the reference rate specified every six months by the European Central Bank + 7 % points. This is the highest rate of
interest that a business may charge its consumers. In 2011,
the penalty interest rate may be up to 8 %.
PROFIT Net operating profit is an item on the profit and loss
account that is obtained by deducting variable costs, fixed
costs and depreciation and write-downs from net sales. Net
operating profit is the result for business operations before
the profit is distributed.
DISTRIBUTION OF PROFITS refers to distributable retained
profits for a business. After taxes have been paid, any profits
from business operations can be paid to the owners.
SELF-EMPLOYED PERSONS’ PENSION INSURANCE
(YEL insurance) is a mandatory form of pension insurance for
entrepreneurs, according to which an old-age pension is paid
to entrepreneurs, as well as sickness benefit from the Social
Insurance Institution of Finland (Kela, www.kela.fi), and maternity, special maternity and paternity allowances and parental benefit or rehabilitation allowance. The entrepreneur’s
YEL insurance contribution is based on his/her YEL work income. The YEL work income must at least match that salary
that would be payable to an individual possessing similar professional skills, if (s)he were employed in that work. Thus, the
YEL work income is not taxable income for the entrepreneur
or earnings generated by the business. The minimum limit for
YEL insurance work income is EUR 6,896.69 per year (2011
figure). Guidelines on the determination of the entrepreneur’s
work income are available from the website of the Finnish
Centre for Pensions: http://www.etk.fi/Default.aspx?Lang=2
> Pension Insurance > Insurance for self-employed persons
> Self-employed person’s confirmed income.
SINGLE-ENTRY BOOKKEEPING See Bookkeeping
GENERAL COMMERCIAL ACTIVITIES means that the enterprise engages in, or that it is able to engage in, all kinds
of lawful business activity. General commercial activities can
be recorded in the foundation documents for an enterprise
and they are declared in the Finnish Trade Register. (Thus,
no particular line of business is specified, such as construction or cleaning.)
49
ENTREPRENEUR This is an individual, who alone or together with others, engages in business operations via an
enterprise. The aim of the operations is to make a business
opportunity profitable whilst being subject to various risks.
BUSINESS INCUBATOR This helps a new business so that
it can grow and develop. A business incubator provides an
enterprise with, for example, premises, advisory and expert
services, mentoring, training and networking opportunities.
The entrepreneur creates an agreement with the business
incubator for a fixed period, usually two years.
FORM OF ENTERPRISE The forms of enterprise that can be
registered in Finland are a sole trader (firm), general partnership, limited partnership, limited company and co-operative,
as well as the less common forms, public limited company
and Societas Europaea. The form of enterprise affects limitation of the entrepreneur’s liability, the minimum number of
people founding the enterprise, taxation and distribution of
profits as well as registration payments in the initial stages
and the minimum capital required.
50
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Loimaan seutukunnan kehittämiskeskus ry
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Mikkelin Seudun Uusyrityskeskus ry Dynamo
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www.uusyrityskeskus.fi